To create a playlist Start XBMC on your xbox and go into the folder 'my music' or 'my videos':
1. Select a track and hit "y" on the gamepad or "0" on the remote (assuming you have not changed the keymap.xml).

If you hit "y"/"0" over a folder or bookmark it will will add all valid music files in that bookmark/folder and all subdirectories to the playlist.

2. Save the playlist by accessing playlist screen view by hitting either 'black button' on the gamepad or the "title" button the remote.

3. Save the file (this will be saved to Q:albumsplaylists by default- where Q: is the XBMC "home" folder) using the onscreen keyboard to name the playlist.

Hope this helps the newbies.. :)