According to other numerous reports, it's not actually true.
It appears Qtrax is still boasting about a large number of free, legal downloads from the website, but upon further investigation, here is a statement on their website once you get to the download screen: "We're thrilled with the massive response we've received. To ensure the best user experience, we're activating accounts in stages. In the meantime, enjoy all the functionalities of the Qtrax player like importing and playing your music and searching for artist-related content."
Apple can breath easy for the time being.