Can anyone tell me how to set up a playlist using windows media player 10? I use this for my music but cannot figure this out. I appreciate your time.

I cant figure out how to do this on the pda either;
but if you create playlists on the the PC and sync down from the PC's Media Player, the playlists appear on the pda.
They are stored in \Storage Card\Playlists\<playlistname>.asx

It may be possible to modify them there... but I cant see how to do that either.

There is no way to create a playlist within Windows Media Player 10 for Pocket PCs. Syncing playlists from your computer to your pocket pc is the only way to get playlists on the pocket pc with the existing pocket pc software. Here's a link where you can download some Playlist software that should help:

Playlist Manager v0.7.3