I've given up with that option and instead just use the Export All Playlists feature then manually drag and drop the m3u file from Finder to the left pane in iTunes.
In terms of iTunes behaviour I've found that if you drop the updated playlist directly onto the old playlist of the same name in iTunes it will ADD new tracks to that playlist in iTunes but it won't remove tracks. So if you want to replace the playlist in iTunes with the newly updated version exported from MC you have to first delete it from iTunes then drag and drop to add it back again. Then when you sync your device you'll have to tick the playlist again.
