[edit: This also works for the Sansa Fuze]
Go into the program and create your playlist in the 'Now Playing' window.

Highlight the songs in the 'Now Playing' window. Right-click and select the 'Send To...", then 'Syncronize' option.
This will send the music files to your player, and create a '.M3U' file in the Sansa Clip's 'Playlists' folder. This M3U file will be incorrectly formatted, and the player will read it as empty.
In MediaMonkey, navigate down to the 'My Computer' icon in your tree viewer, and navigate to the Sansa Clip. Be mindful to go through the 'My Computer' item to get to the Sansa Clip (and not the Sansa Clip above the 'My Computer' tree item).
Navigate to the Sansa Clip's 'Playlists' folder to find the 'Now Playing.m3u' file. Right-click it and select the 'Export as .m3u playlist' option.
Save the new .m3u file to the Sansa Clip's Root Directory (not the 'Playlists' folder). Feel free to rename the file to something more recognizable.
The new .m3u file will look similar to this:
In Windows explorer, navigate to the Sansa Clip's 'Playlist' directory, and delete the old 'Now Playing.m3u' file (it would show up as an empty playlist).
Disconnect the Sansa Clip from your PC, and let it refresh its database. If you've followed the instructions properly, your playlist function should work now.