Tks for the reply Ron,
I tried out MediaMonkey for creating playlists and they work fine. The ones I created had the paths correct (all teh mp3s are in the same folder as the m3u, thus the m3u just listed the file name). I noticed that MM adds lines like #EXTINF:336…. before the actual mp3 file name. What are they? Anyhoo, the issue is resolved (even though I dont quite understand).