ITunes 10 not using Media folder

I recently upgraded a machine to iTunes 10 and notice that when I now add music, it does so to a "Music" folder that is at the same level in the file structure as the "iTunes Media" folder.
It is not adding music to the Music folder inside of the "iTunes Media" folder.
However if I go to "organise library" the "Ugrade to iTunes Media Organisation" is greyed out and I'm notified that "Your media is already organisd as an iTunes Media folder"
However the way music us being added is as if the Library is not using newer method of iTunes Media organisation.
Any clues on this would be appreciated.

Look at Edit > Preferences > Advanced, and you will see the current location of the iTunes Media folder. This is where newly ripped or purchased tracks will be added. It does not affect the location of files already in your library.
if you have tracks in other locations and want to copy them to the current iTunes Media Folder, you can use the Consolidate command.

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