I have checked with the engineering team and they have confirmed that “Add to Playlist” is only supported for streaming services. This is not supported for the Music/iTunes source as this is locked by Apple.
Also, please note that “Add to Playlist” only allows adding to a playlist within the same source - you cannot use this to add add songs from say Beatport or Tidal to the My Collection source.
If you would like to add songs to a playlist in My Collection you need to use the Split Library Mode and drag and drop the files from the music source into the My Collection Playlist (see below).