Yeah, this was one of the changes with the 3.0 System Update that wasn't very popular in beta testing. You can still play music while gaming BUT you have to use the media player app instead now. The problem, and I assume you have experienced this, is that if you are listening to music off of a USB drive now while playing a game, you have to stop the game to change tracks.
You can start the media player app before you start your game, then use the PS button to bring up the application menu and use R1 to go to the next track and hit X to play it. The problem is that you can't search for a particular track in this way.