WD TV Live won't play playlists

I continue to get the “this folder has no content” msg.   As a test, I ripped a music CD directly to the drive attached via USB to the WD TVLive. I then used WMP to create a playlist, accessing the contents of the playlist directly from this USB-attached drive, in order to compile my playlist. Then I saved it, in M3U format, directly to this same USB drive. But as always, the same msg.

I guess I don’t really understand your advice regarding a similar folder structure on the HDTV Live and the source machine. In the case I just outlined, would the ‘source machine’ and HDTV Live be one and the same??

I would dearly love to have this thing figured out…if you could walk me thru your instructions  a little more I’d greatly appreciate it.