I found a solution for this here:
http://techblogbydave.blogspot.com/2008/11/itunes-song-could-not-be-used-because .html
To repeat what is there, the problem is iTunes not finding the file(s) in the place it thinks they should be. This can happen for various reasons, including the files being moved or if you primarily use Windows Media Player and imported a playlist made with WMP.
Quit iTunes.
Locate your iTunes folder.
For Mac OS X the iTunes folder is stored in one of the following locations:
/Users/[your username]/Music
For Microsoft Windows XP and 2000 the iTunes folder is stored in:
\Documents and Settings\[your username]\My Documents\My Music\
For Microsoft Windows Vista the iTunes folder is stored in:
\Users\[your username]\Music\
Open your iTunes folder.
Drag the iTunes Music Library.xml to the Desktop
Now, open that file to edit it (in Windows, right-click and choose Edit, use Notepad). Look around and you will see that each song has something like this:
Location</key><string>
After that you will see the file's location. You can then use Notepad's Edit-Replace to fix drive letters or other paths. For example, I found that it had a relative path such as:
Location</key><string>../../Folderwithmusic/musicfile.mp3
Which was the location relative to the playlist I imported from WMP!
I replaced the "Location</key><string>../../" with the correct path:
Location</key><string>
file://localhost/m:/Folderwithmusic/
(Where "m:" is the drive letter).
You aren't done. You have to delete the library file as well and then point iTunes back to the file you cleaned.
Mac OS X: "iTunes Library" (in versions of iTunes prior to 4.9 this was called "iTunes 4 Music Library")
Microsoft Windows: "iTunes Library.itl" (in versions of iTunes prior to 4.9 this was called "iTunes 4 Music Library.itl")
Open iTunes.
From the File menu, choose Library > Import Playlist.
Tip: Do not add any music into iTunes at this point.
Navigate to the iTunes Music Library.xml file on the Desktop.
Mac users: Click Choose.
Windows users: Click Open.
After re-creating your library, any devices that you sync with iTunes (Apple TV, iPod, etc) will see your iTunes library as a new library and will completely resync."
For steps to backup and restore playlists see "iTunes: How to backup and restore playlists. "
If your podcasts list in iTunes is empty after following these steps, see article HT2562.
If the iTunes Music Library.xml file is not available, follow the "Add to library" steps in "iTunes: About the Add to Library, Import, and Convert functions" to add files back to the Library (because the iTunes Music Library.xml file is not available, playlists and other information will not be available).