What are you afraid of that makes you so shy ?
People rejecting you or ridiculing you ?
Is there something in your past that made you decide to 'play it safe' ?
The instrument thing I can completely relate to, I used to play the saxophone (I managed to blow a small hole in one lung so not any more), and I really didn't dare to play it in front of others, I felt completely naked doing that.
And then one day a guy I knew in Amsterdam changed that, he played as well and said, come, the weather is good, let's go outside and play. He was way better than I was and there was no way I was going to be caught dead playing out in the street (Amsterdam, so you're pretty much assured an audience).
But he kept on needling me until I gave in, one song only. So we went out and played that one song. One song became 10 and before long I really enjoyed it, even if I never played outside again I did lose my shyness about that.
With people in conversation it is a different thing, writing is a lot easier than speaking because when you write you can re-read your words before you click that 'submit' or 'reply' button and that gives you some time to get your thoughts in proper order.
People that are good at 'thinking on their feet' usually have less of a problem with interacting with others than those that need to think for a bit.
I really suggest you read darkxanthos' blog posts about all this, he has a way with words that I can't hope to match and his experiences are chronicled in a way that you actually get something from it that you can use.
There is this song called 'sunscreen', one line in it stands out for me: Do something that scares you every day.
best of luck!
Jacques