AFAIK There's more than one type of file-extension for playlists. But the one LW uses is m3u when a playlist from the media player is saved.

As Sphinx suggested it sounds like a setting within your player. Are you refering to a portable player or another player? If you're refering to a software mp3 player then the playlist will not work if you moved or deleted any of the songs AFTER creating the playlist file. Remember a playlist files points the player to the location of the song files. If the location of the songs has changed or they no longer exist then the playlist won't work.

If it's a portable player, then it depends on brand. AFAIK portable players generally use a go-between program such as a media manager to help copy from the computer to the portable player. (except for iPod) I have no idea how portable players handle playlists originating from the computer.