The individually shared file folder listed in your LW Library is a psuedo folder, it doesn't actually exist on your computer.

People can name their LW download folder whatever they wish or choose a particular location. It sounds like you have chosen the title or location of My Music folder which is found in your personal account folder. That's fine. I am a little mystified however about the newest LW releases as some changes have been made & I haven't tried them out (I use a mac.) I need to however to test these things out, since I have installed XP on this new mac computer.

I'd be curious to see a full listing of your set up on your pc. It's not easy to understand exactly how you have iTunes and LW set up.

Go to iTunes, Edit menu -> Preferences -> Advanced & see what your iTunes importing location is. Is it your My Music folder location?
Also, do you have the option clicked to Copy files to iTunes Music folder when adding to Library?

When iTunes is open, do you see a LW playlist in there on the left side?

Remember "Folder" is like a box, it can contain files (or documents). Try not to confuse the term "file" with "folder".