I tried it here in a 8.6 Sheepshaver install and it worked fine.

Copy installer from smi to hard disk, patch and run patched installer.

Don't restart

Patch iTunes and extension

Restart

iTunes will complain if Documents/iTunes doesn't exist. Create it and run iTunes again.

Make sure you're running "iTunes 1.1 for Mac OS 8" and not iTunes as it creates a new patched app.