Adjust iTunes settings

Open iTunes

In the Edit menu, click "Preferences" and in the window that opens go to the Advanced tab

Uncheck the options "Keep iTunes Music folder organized" and "Copy files to iTunes Music folder when adding to library" as shown below

Import your backup in iTunes

In iTunes, click File->Library->Import Playlist... (just File->Import... in iTunes 7 and earlier versions)

In the Import window that opens, make sure the File type is set to "All files"

Select "_iPodBackupLibrary.xml" and click Open

You're all set! Your songs, playlists and other precious data have been imported to iTunes!