- Create a regular (non-smart) playlist named "Live Tracks"
- Click the Music playlist in the source column to list your music library. Set iTunes display mode to list. Select every track in the Music playlist (Command+A). Drag the selection to the Live Tracks playlist. Since iTunes will only add a track to a playlist when it knows the file exists, the Live Tracks playlist now lists every "real" track you've got.
- Create a smart playlist with these conditions:
Match all rules
Playlist is "Music"
Playlist is not "Live Tracks"
Live updating
- Name it "Dead Tracks"
The Dead Tracks playlist now lists every track for which iTunes can't locate a file. To delete all these tracks from your library, select them all in the Dead Tracks playlist and press Option-Delete (Mac) or Alt-Delete (PC) to remove them from iTunes.