I had limewire version 1.7 and updated to limewire 2.1.3 and lost all 600 files I had. Shouldn't they have been transferred to the new version?

Your files are still present on your system. Unfortunately, LimeWire 1.7 used a different default save directory than the current version. Basically, LimeWire only displays the directories that you are sharing in the library. So, to get your old files to appear, you would need to add your old shared directory to your list of shared directories in the Tools>>Add/Remove Programs window.

The default shared directory on 1.7 was c:\Program Files\LimeWire 1.7\Shared. You could also just move the files from that directory to the new default shared directory, which is C:\Program Files\LimeWire\Shared. This would also make them appear in your library.