During setup, an ad-hoc wireless network is created between the the controller and player. This is how the configuration information is communicated to from the controller to the player without having any information about SSIDs and encryption keys.

It must be that when the player is configured wired and there is no wireless network that an ad-hoc connection is created between the player and controller. Either that or the player is acting as some sort of bridge.

The wiki is slow at the moment, so I can't find the definitive answer at the moment.