Hey Archeon, here's what I can tell you:

I tried the situation you're in and came across the same issue you're reporting. When I tried uploading a playlist, it insisted on uploading duplicates of the files that were already on the player. Another guy suggested trying to copy an .m3u straight onto the iPod via the explorer, but it looks like the iPod maintains its own special directory structure, so that was nixed.

I have entered this issue into our bug tracking system. One of the engineers should take a look at it today or tomorrow and see if they can fix this or make an enhancement to address the situation.

Until then, you can create a playlist on the iPod and drag and drop files (already on the iPod) into it. The one down side to this is that if you want to have a file in more than one playlist, you'll need to have duplicate files. I don't think the iPod uses as smart a system as the empeg does.