I have a good process worked out using a program call "NotPod" to sync playlists to a USB drive from iTunes. Then I use"Flash Renamer" and rename files with zero padded disc and track numbers, so they all play sequentially just fine.
I typically keep whatever book I am listening to on one USB drive, and my music on another.
BTW, Kenwood does have a program that supposedly indexs usb drive for use on the radio, but honestly I either can't figure it out, or more likely, it is smoke and mirrors.