Network Drive for backup (and archive and iTunes)?
I don't have a WD but my LaCie D2 Network 2 also has Time Machine support, and it works well.  You don't partition or format it, you just flag a share as needing to support Time Machine and the device takes care of everything for you.

As for sharing a partition between backup and iTunes, that's not a good idea because Time Machine will eventually use all available drive space for backups, using any extra space to increase the number of versions of files it can keep.  The LaCie drive deals with this by letting you create as many shares as you want, and putting a quota on the share available to Time Machine so that it won't take over the rest of the disk.  I'm nowhere near my quota so I don't know how well it works though.  Presumably WD has done something similar.