Perhaps iTunes has changed since that version (maybe just a little!), but if I drag a song, at least an .aif, into iTunes, in is not an alias, it is there until I delete it. I can delete the original from my drive(s) and it remains in iTunes. It may be some settings I have, I don't know. But if you aren't deleting the stuff you've already put into iTunes and drag another copy in, it could easily get confused about which one to play.
I suspect that dragging the same file into iTunes more than once is a great way to create duplicates?
On the other hand, if they really are aliases and you still have duplicates in iTunes
AND you've rearranged the hierarchy on your folders holding the originals, it would be even more confusing to pick the correct file to play; the alias, the one that is now in a different location, the one last dragged in, etc.
At any rate, once a file is imported into iTunes, you can create as many 'playlists' as you want without making duplicates in the iTunes Library, as far as I know. Of course, what I know of iTunes is extremely limited...especially what that version did with files.
When you delete a file in iTunes, how do you do it? Do you get any dialog asking for confirmation?