Rumors have been circulating for weeks of odd DRM-free happenings in the iTunes music store. Of all the major music labels, Apple only has a deal with EMI to sell its music without digital rights management, yet reports from overseas keep indicating that other labels are already in the iTunes store with DRM-free music as well. The latest of these reports shows a screenshot from the French version of iTunes with previously protected music, now being sold as “iTunes Plus,” the name of iTunes’ unprotected offering, Epiccenter reports.

The music in the screenshot is Neil Young’s, which is distrubuted by Warner — a label not currently a part of iTunes Plus. And in the American version of iTunes, Neil Young’s music still is laced with DRM. So what gives?

Well, either the record labels have some kind of new deal with Apple based on what country they are in, or Apple is testing the waters for an upcoming DRM-free push. Speculation on various sites (including this one) wonders if Apple could unveil a completely DRM-free version of iTunes at Macworld Expo in a few weeks? Apple loves to make a big splash at that event, and that would be big news — especially considering Apple chief executive Steve Jobs long ago promised massive amounts of DRM-free music in iTunes, but has yet to come through on that promise while rivals like Amazon MP3 have.

But a recent report suggests that despite the advantage, the DRM-free Amazon MP3 is still no match for mostly-DRM’d iTunes, as MediaMemo notes. Still, I believe if Apple doesn’t match its rivals’ with DRM-free music at some point, the public could wake up and realize they’re buying an inferior product (and most of the time at a higher price).

That of course hasn’t been Apple’s fault. The music labels are playing hardball with Apple because it is in such a dominant position for music distributiong — this past year it became the number one retailer in the U.S. for music. Yes, that includes traditional brick and mortar stores. DRM-free music is really the last bit of leverage the labels have over iTunes, and it seems like they are using it. A new report suggests the labels are demanding varying price points for music and things like digital watermarks (different from DRM) if they are to give DRM-free music to iTunes.

There’s a lot of smoke out there about this issue — I bet we find the fire soon.