That's right about the shared folder unless you downld more than just music. I tend to use those files for backup ... but I think most people just delete the music in the shared folder. WARNING: Not all music is always imported into iTunes. iTunes cannot import Ogg vorbis mp3 format or rm format for example. So just keep an eye on it & double-check. That's why I have a backup player called Audion (which is now free) which will play & convert more formats:
http://www.panic.com/audion/
You go as deep into iTunes as you want to. Remember you have these choices 1. share the entire iTunes library. 2. Select & share particular artists. or 3. Select particular albums to share.
eg: For me it's like HDD Partition>iTunes Music>Artist>Album. I share the entire library but not everybody does that & is your opinion. (Don't forget to press apply button after adding. Another way you can add is to go to LW's Library window, go to menu File>Add folder to share. Easy as that. Need to press refresh button for LW to immediately account for the new additions.)