.mpu is a playlist file, a long-standing standard across many software audio players. .mpu files don't hold any audio data: it's basically a text file with a list of filenames for the songs in the list.
If the mp3s you gave her stopped playing then the most likely explanation is that she deleted them. Maybe unintentionally, as with TC2, by having iTunes set to keep the iPod matched with the Library.
Regarding your earlier comments on games developers. They resent it almost as much as the paying user. The push comes from publishers and often the developer has no choice but to disable features, such as auto-reload, and replace them with purchasable content.