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Ok I have same player, same problem. Turns out Windows Media player copied the files into the FM subfolder on the device.
connect device to computer. Do not open WIndows media player, instead open windows explorer, in there you should see the ilo as a new drive. Click the drive and go into the FM folder, now select all files and drag them directly to the drive. The secret is the files have to be outside of the FM folder loose in the device (not in any folder)
After that I safley removed the device from the system tray icon and powered it on and the songs were all there. It runs an index process that creates the lists, this takes a second.