When Iroh plays the song for the crying boy, he strums his instrument like a guitar. The instrument he plays, however, looks like a traditional Chinese instrument that is played upright while sitting down and is too heavy to be carried like a guitar. However, in the purely fictional world of Avatar, there are many things which would be impossible or "wrong" in reality. In this specific case, just because the instrument looks like a certain real Chinese one, doesn't make it the same one, if only because China doesn't even exist in this fictional world.