I have brought across Victor's post from RSC for easy reference....
First of all, LFS only plays OGG files. So any tune you want to have played by the game will have to be converted to the OGG format.
Want to know what OGG is?
http://www.vorbis.com/
Want to download an encoder/decoder?
http://www.vorbis.com/download.psp
To add the ogg-files in LFS:
Options -> Audio -> Channels button (lower right)
You are now in the Channels screen, where you can add 'radio channels' and put songs into each channel.
Depending on which of the two NEW/NAME/DEL blocks you are using:
NEW creates a slot or radio channel for a tune
NAME gives you a list of all OGG tunes in your LFS/data/ogg folder and lets you select the tune for that slot. OR renames the radio channel.
DEL deletes the slot or radio channel.
In order to have a song actually played, you need to click the arrows to the right of each name to add playback priority. Ech row there represents a channel and each number in that row represents the playback priority (1,2,3 where 1 is low, 3 is high prior)
That is it basically. Remember to save your settings in the channels screen, if you don't all modifications are lost.
As a final thing, you can select your radio channel/skip songs or load one on the fly, in the options->audio settings.
Hope this will have made it clear for you!