A sandboxed iTunes would also prevent syncing your iPod and importing existing music collections, because those both require access to files outside the sandbox, which is probably why Apple hasn't done that.
A sandbox isn't a totally isolated prison. It's a permissions system. Programs can read specific files and folders outside the sandbox and can even ask the user add new files/folders to their whitelist.
About a year ago or so I tried to fix a computer of an OS X user where the Dropbox installer somehow deleted the home directory and replaced it with the dropbox application... That was an odd experience (and one where sandbox didn't help...)