Hey Ted_
I've been on the move a lot more recently, and am relying more heavily on my ipod to listen to the lessons, so I was actually wondering the same thing as you about a week ago. I tried doing the same thing, editing the "Lyrics" on iTunes. . .and it WORKED!
I'm not sure why its not working for you, but i would check to make sure you have the latest iTunes software as well as software for your iPod. I dunno if the ipod model/generation is important but just f.y.i I am using a Gen.3 nano.
Also, i dl the lessons directly from the site, put them on my ipod, and then change the lyrics for the stuff on my ipod thru itunes (i doubt tho, whether the approach has any influence on the lyrics changing or not).
Hopefully u can get urs to work. . . cuz its been a ton of help being able to edit the ipod notes for when i'm running around (even more so for us non3G people who can't see pdfs). i change everything to hir/kat/kanji for the lessons i want to see the next day, and then add my own extra notes for review afterwards. its beauty~