Both my daughters tried out for TAIE yesterday, with mixed results.
We were not there at rope drop, but were there shortly after 9 am. We met a very nice young man named Matthew at the front gate as he was waving TAIE sign. He explained the process like most others here, except he said the initial audition was limited to 30 secs. He then gave us a "discovered" button that told the next folks that we'd already had the process explained.
We then met a nice young lady (missed her name) out front of the audition area (which is BEHIND then AIE theater, BTW. Go between the AIE theater and the big hat, and turn left where it looks like nothing is there. Then voila! You see the audition umbrella). She ignored said button and explained everything all over again.
Both daughters went in, which required two adult chaperones. We were prepared for that, as we heard they were very strict on that, and they were. One daughter was selected for round two and one (the one I was with) was not selected. I then had to console her outside while it was obvious that her older sister had been selected. The producer we had was absolutely encouraging and said she was "cute as a button," "had a very mature voice for her age," but that they were looking for certain types, and "teenage girl fills up very quick, so I unable to cast you at this time." He was VERY sweet about it, encouraging her to keep on singing.
BE PREPARED FOR THIS if you have two kids. We did our best to prepare them both for one getting through and the other not getting through, but it still is quite disappointing when you know one sibling made it and the other didn't. Tears were shed. But I was very proud of her being supportive of her sister the rest of the day.
The older daughter was selected, and the rest of the story is as most of you have said. They filmed a vignette with her that was shown during the performance.
It does take quite a bit of time. The audition process that was supposed to take 20 mins actually took an hour due to the filming of the vignette. Then we had to be back 30 mins later for hair/makeup. Then the rest of us could be there 30 mins later than that so we could see her practice before the show, then the show. That's a 1 hour audition, 1.5 hair/makeup-performance, with a 30 min break in the middle that we really couldn't do anything with. We were NOT given fastpasses, nor did my attempt to show the "you have been selected for TAIE" card at the fastpass line help.

So pretty much we were busy from 9 am to 1130 am.
Then she won! Yay!
We then had to be back at 6 PM for hair/makeup for the 7 PM finale, which took an hour. Since the park opened at 9 and closed at 9, we only got 6.5 out of 12 hours of the park. If you look at it that way, I paid an awful lot of money for 6 hours in the park. (Especially since I bought parkhoppers which we never ended up using. Hint: Don't buy parkhoppers if you're thinking of doing TAIE. You don't want to waste 1.5 of your 6 hours travelling to/from another park.) But I didn't look at it that way. I spent about $700 to have my daughter have a lifetime-memorable experience, and we were able to ride a few rides along the way.
BTW, Matthew saw us again at the end and slipped us two fast-passes good for up to 5 people so we could hit a few more rides before the park closed. Nice touch.
Interesting things to note:
1. There are apparently a bunch of locals that do this all the time, so they're going to be pros and are much more likely to win the finale.
2. There are days when there is stiffer competition than others. Your chances of winning are as much about luck as they are about talent.
3. Seeing your child (or husband/wife/partner) up on that stage is just awesome. Coolest. Thing. Ever.
4. Over and over emphasize throughout the day that this is about the experience NOT about winning, since your odds are very low that you will actually win.
5. TAIE is a lot like the real AI in that there are all sorts of reasons people vote and not all of them are about talent. Remember the seasons where people with ridiculous talent are voted off and others who are obviously of lesser talent continue on? The same kind of thing happens here. My daughter actually overheard someone saying how they were going to vote for the worst performer. Sheesh.
Hints to Disney if you're reading and/or care:
1. As a person whose job involves both pre- and post-production video work, I find the fact that you produce 8 of these shows a day amazing. Each show involves much more than what most people see or realize, so I just wanted to say kudos to the crew that makes that show (and all of its vignettes that are used) happen. Very impressive.
2. These performers are staffing your venue for free. They do it for the chance to win, of course, but I think you could be nicer to them and their families. What does it cost you to give us the kind of permanent fastpasses I know you have (cause I saw people with them)? Nothing. 100 more fast passes in a park that size would go so much farther for those of us who have to wait around during the experience.
3. You offer pictures but no video of the performance. I know there are rights issues with the music, but what about the vignette you did, or the "we love you, shelly!" videos you do, etc. Or videos of just the performers on stage, without the music playing. I'd TOTALLY pay for that.
4. Matthew's awesome. Just sayin'.
We'd do it all over again, and probably will. Too bad we live so far away.