Yes, your PC must be on to play your mp3 on a squeezebox. If you use Pandora, Rhapsody, or a multitude of other internet radio stations, the Squeezebox can play those feeds without your PC on.
I wouldn't consider Sonos until you were looking at distributing the music to multiple rooms in your house, and even then, I found the Squeezebox to have advantages over Sonos at a lower price.
As for DRM files like downloads from iTunes, they will not play on the SqueezeBox, but like you said, you can 'unprotect' them with a little effort. Other than that, the software works very well with iTunes. It scans your computer for your iTunes library, plays the music and displays the tags in whatever format you like. I was probably listening to my iTunes library on the SqueezeBox 15 minutes after I took it out of the packaging.
