hello there! I think I may have a solution for you...
I also have an HP Ipaq but it's an H1940. When I first gone through placing in mp3 songs from my desktop to my pocket pc I ended up placing in 2 songs only because each song is about 7-9mb and I already had some other applications that took up space as well...
What I did was I converted my mp3 files from mp3 to wma. It has the same quality in terms of sounds but differs greatly in compression size. My previous mp3 files that were 9mb became 1012kb (more or less 1mb!) but still sounds the same!
There are a lot of softwares that can convert mp3 files into wma files. The one I used is dbPoweramp (freeware) you can get this from http://www.webattack.com
However, there are a lot of other softwares that can do this, look for the one that suits your needs. You can tweak the number of kbps (sets the sound quality) to the settings that suits you.
Regarding the Playlist creation : I used activesync to transfer files from desktop pc to ppc but there are a lot of similar software in the net so you can use any other software for this particular process.
1. Convert your mp3 files using the converter program
2. Transfer your music files from your desktop pc to your pocket pc
3. Run Windows media Player from your pocket pc
4. Windows media player automatically makes a playlist consisting of all media files stored in your ppc's memory.
To manually create a customized playlist :
1. Run Windows media Player from your pocket pc
2. Tap on the "Playlist" button on the lower left menu
3. Tap on the "playlist" button located in the upper left menu
4. Tap on Organize playlists
5. After this, you will have the option of adding, renaming, and deleting playlists
If you tap on "NEW" you are given the option to do the ff:
1. Set name for the playlist
2. Set folder location (Default location is in "my documents")
3. Choose the source (main memory, ipaq file store, and SD Card)of your media files. If you don't specify a source, default will be the main memory
4. After pressing "OK", the list of all your media files on the selected memory/source will be shown with a checkbox. Mark all files you want to include in your playlist.
5. Press "OK". there... you now have your playlist.
hopes this helps. It may be a bit of a hassle having to convert files but it's worth your while. It works for me fine even without an SD card I can store 10-20 wma media files. With an SD Card I can store much, much more!