Using xine-lib-1.1.13, Amarok does not work with magnatune. It gives an error about not being able to open the stream. Using xine-lib-1.1.12, playing over the network does work and so does Amarok with magnatune. I have also posted this problem on the forum at http://forums.gentoo.org/viewtopic-t-517485.html
You mean xine-lib-1.1.3_pre20061112 (3, not 13). I can confirm that Magnatune does not work with this version. Other streams (Last.FM and internet radio) work normally, though.
Issue identified.
This is fixed as of version 1.1.3_pre20061119. Thanks for reporting.