I updated White Noise to v5.0.2 last night on my iPod Touch 3G with OS 5. White Noise now turns off when the display turns off. Since I use White Noise to fall asleep, this makes White Noise worthless. Is there a fix in the works for this bug?
SOLUTION:
Through experimentation, I solved this issue. I don't know if this is considered a workaround, but it does work.
Both "Screen Lock" and "Background Audio" must be turned ON. This allows the iPod Touch display to turn off, and allows White Noise to continue playing per my Stop Sound setting.
This solution was not intuitive, since "Background Audio" applies to mixing White Noise sounds with iPod music.