That sounds like it may be a virus. There's one that changes all your files to .exe's and moves them to the program folder. That would explain why your songs won't play. Also the files in itunes are playlists and only point to the actual file. So if the file gets moved the playlist won't work.That can be fixed by moving the files back to the original location, but I think it's a virus.
Try downloading AVG(free), update it, scan your computer. It's worked for others:
http://free.grisoft.com/doc/avg-anti.../lng/us/tpl/v5