Not sure why it would matter what format the music is in, so long as it is named in the correct way. I think it has to be in the artist - track format for it to recognise it. Compilations tend to confuse it, as usually they're compilation name - artist - track. It doesn't recognise internet radio either.

On that note, I listened to my personal radio station for most of yesterday evening and it's quite cool how much variety there was just from my profile.