Yes, the library is not akin to windows media 7/8 or musicmatch, but more like a convenient windows explorer. This is simply how most p2p programs work, and it makes sense. That way, users don't delete all their files in the library, and wonder what happened to their 100mb of hard drive space, since they see nothing in the library, but the files would still exist without their knowledge of location to permenantly delete.
I do think LimeWire would benefit with a "My Shared Folder" desktop shortcut, with less bonzi buddy and casinos. But, we all gotta make a livin' somehow.