One of the most annoying things about iTunes (I'm using 7.2.0.34) is that its unable to keep track of changes you make to your music folders. So for example, I keep all of my music in D:\Music, but I'm constantly adding, deleting and modifying files within that folder. iTunes will NOT keep track of the changes I make, and wont update the files in my library.
Most annoying is the little grey exclamation point which indicates the file is missing. This program can also clean up all of your missing files. It's really a wonder why iTunes has no built in method to easily find and remove physically missing files.

The link below shows you a few ways to sync any folder into iTunes. For me, I just set it up to look for my music in D:\Music and iTunes Library Updater does the rest.

Check it out:
Automatically Sync iTunes to Any Folder

Edit (Sept 10/07):
For Mac users, there is a great AppleScript that will find, remove and log all the physically missing files from iTunes. Have a look here.