That LW file in iTunes is just a playlist...so you won't be able to do much with that. Find your saved folder (where your downloads are saved).
Go to your LW library, click on Saved Files then click Explore...your saved folder will open & you should be able to drag & drop from there into your iTunes library.
If you need more info, there are other ways to add to iTunes in this sticky
Transferring music to iPod & iTunes