IIRC, The playlist files have to be stored somewhere in the path to the actual music files. The top level directory is the best place.
This is because the path that Firefly sees to your music is different to what your computer sees.
i.e. My computer thinks the path is “X:ArtistAlbumfile_name” so that’s what goes into the playlists but Firefly sees “share/flash/data/music/Artist/Album/file_name”.
Firefly is able to work out the “X:” should be “share/flash/data/music” but the playlists have to be in the “X:ArtistAlbum” path for Firefly to be able to work this out.