Found out how to do it. I finally figured out where the MT-DAAP config file was and read it. Realised that M3U processing is switched off by default in this build. Removed the comment string and set M3U processing and rebooted. The file in my previous post then worked immediately.
Many thanks for a superb toy. I will probably update to Firefly when the Soundbridge 2.5 software goes to issue. But for now 0.2.1.1–1 does everything I want. Will Firefly binaries be posted at a future stable release as 0.2.1.1-1 has been at the Linkstation Wiki?