The inactive code apparently supports conversion into FairPlay from a wide variety of file formats: MP3, MAV, RAW audio, and standard unprotected audio CDs. A breakdown of chicken/egg reverse engineering is found on this blog entry.
CNET's John Borland says Princeton researchers found the code while deconstructing the rootkit.
The use of FairPlay would allow copy-protected music to be played on iPods, which isn't possible with other DRM schemes.