Yes, you have to be a little careful – unlike a lot of other software, the library on Virtual is actually a full directory listing of your hard drive – so actions can be a little more permanent than you might intend if you start moving things around!
Can I assume you are getting to your music in the library by opening up the “my pc” folder and going from there? That would indeed show you everything.
How I set up my system is I have one master directory called “music” and have that set as a favourite so it shows up in the root listing. Then when you open that all the subfolders are there without having to navigate through the rest of the PCs file system.
Then you can set what directories show up in the root listing and remove anything you don’t want to see or use.
Hope that helps.