There is definately a problem with permissions. I would suggest running as mt-daapd and easy up the permissions on the music folder (try chmod 777 and then work your way down).
The main problem might be that you are indeed running locally. When compiling Flash code, you have to tell the compiler whether to allow network access or local access. If you can, please try to connect to your FirePlay from another computer and see if it works.
Also you could try to access http://ipaddress:3689/FirePlay instead of “localhost”.
Did you try to edit FirePlay.html with your host and port?