If I read that correctly, indexes will only help when browsing deeper (all albums of one artist), not the full artist list.
The only times I do experience such failures is when at the same time, I try to connect to the server in iTunes, somehow Firefly couldn’t handle multiple browsing connections in the last release. Are you trying to test the connection to iTunes at tthe same time you’re trying to browse?
If sqlite behaves as other relational engines do, then the Artist list would be served up completely from the index in pre-sorted order without having to read the underlying table. It’s called “index covering” The performance improvements are quite large in large tables. While I have lots of experience with commercial relational engines, I have no experience with sqlite.
I only resorted to iTunes after my Soundbridge wouldn’t work. Actually, I tried it on 2 separate Soundbridges.