trainguy77 is right... I had mine set to the iTunes folder which works fine except that it imports new songs into that folder instead of the iTunes Music subfolder...stupid me.
anyway, not sure why it doesn't work on your machine, sorry. If you don't worry about losing your playlists and ratings, then you could probably just uncheck 'copy to iTunes music folder' and then select 'add to library' and select your music folder...
But damn, what are we missing?