Everything should be placed in the Items folder, if m'memory is serving me correctly.
Now, as for the items.cgf file, did ye click "Yes" when it asked ye to replace it with the old one? Check to see if ye 'ave the correct file in the FH folder. If the file is empty (besides the Christmas hat ye get with the game) then all ye need to do is copy the new CGF file and paste it over in the FH folder.