I think I have this working now. I've created individual .M3U files for each Last.FM radio station; Personal, Neighbourhood, Loved Tracks. I then added each file individually to TVersity via Add/File...I daresay I could add other categories and groups this way too.
Unfortunately, when I select the nicely named Playlist file under XBox360, I end up with a song named "mp3" LOL! Still, playing that 'song' works, although every now and then it won't, and I get the red no-entry image showing. Trying again usually works however.
It does seem to continue playing after I select Stop, as I'm seeing tracks appearing in my current tracks display on Last.FM that I haven't actually heard. e.g. I select a different file to listen to (I'm experimenting with podcasts at the moment for example).
Edit - ahh, because it's still d/l-ing the podcast, it isn't actually changing track. If I select another album that is fully served by TVersity, the Last.FM stream is properly disconnected it seems.
Here is the contents of my .M3U file if anybody is interested:
Replace with the IP address (or machine name maybe?) of the PC running the LastFMProxy s/w.
Replace with your Last.FM username.
Now, if I could just have TVersity scrobble my listening data for the files it directly serves to my XBox360 back to the Last.FM, I'd be sorted.