I have had this problem under several versions of the software. It is described here also: http://forums.slimdevices.com/showthread.php?t=69173

To reproduce: Start by having a Duet play music from a local server ("My Music"). Shut down the local server without switching the Duet to another music source. Now the Duet is unusable, with no obvious way to connect to mysqueezebox.com and play music. I have seen blue lights, red lights, "player not found" messages, and a variety of other symptoms. I've had to reboot both Controller and Receiver repeatedly. Sometimes, nothing works but starting the local server again and THEN switching sources. Sometimes, I just let the product sit for a day or two, and its tiny brain recovers from the concussion.

This seems to irritate many users (including me!). It is bizarre that a product designed to work with two music sources can't switch gracefully from one to another when a local server is shut down! 

The user can avoid this by switching music sources before shutting down the local server. BUT, we are human and we FORGET. Can Logitech please do something so that a simple user memory lapse does not lead to hours or days of annoyance?

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"Information" window copy follows. Even though I'm using NAT, I've obliterated some information for (probably misguided) security reasons.

Squeezebox Server Status 
Version: 7.4.1 - r28740 @ Fri Oct 2 06:02:19 PDT 2009 
Hostname: Axxxxxx 
Server IP Address: 192.168.10.xxx 
Server HTTP Port Number: 9000 
Operating system: Windows XP - EN - cp1252 
Platform Architecture: 586 
Perl Version: 5.10.0 - MSWin32-x86-multi-thread 
MySQL Version: 5.0.22-community-nt 
Total Players Recognized: 1   

Player Information 
Information on all identified devices connected to Squeezebox Server   
Vxxxxx 
Player Model: receiver 
Firmware: 65 
Player IP Address: 192.168.10.xxx
Player MAC Address: 00:04:20:16:22:21 
Wireless Signal Strength: 91%