I had the pleasure of living in Portland for a year in the early 90's, when the alternative music scene was focused on the Northwest and there was good live music playing all the time in local bars and music halls. Most weekend nights were spent at Satyricon or La Luna listening to local and up and coming acts like Everclear, Heatmiser, Hazel, Pond and many others. Since moving to Alaska, it's been a lot harder to keep track of new music and I was mostly stuck with newer releases of the artists I was already familiar with.
iTunes has been a good way to discover new artists and download songs, but I think eMusic and last.fm are even better. eMusic focuses on independent labels and is a subscription service, which means individual tracks are inexpensive enough that I've been downloading entire albums rather than just buying the "best of" tracks from iTunes. Downloads are unprotected MP3 files, encoded at 192 kbps so they're of higher quality than iTunes downloads, and you don't have to burn and rip purchased files to do what you want with them (like convert them to a truly free audio codec like OGG, for example).
last.fm is a free service that keeps track of what music you're listening to (there are plug-ins for most music players, including iTunes), and recommends other artists that other people with similar tastes listen to. What's different than the "people who bought X also bought Y" sort of connections (although it does this too) is that it has a media player (open source!) that plays full length tracks of the music it thinks you will like. This is much better than trying to decide if you like a new artist by listening to a 30-second sample on iTunes or eMusic. And the data is freely available through a well specified web API. You can see what music I'm listening to right now by looking at the 'music' section on the right sidebar of this page.
So now I've discovered a whole range of new artists that I never would have heard without these services. No thanks to the Recording Industry Association of America (RIAA), their old-style business model, and strongarm tactics, I'm finding and funding the artists I want to listen to.