[Geoff Bacon]

Yes you can; just select the setlists you want to add to an existing collection, 3 vertical dots at top of screen and choose the appropriate menu item. The collections will then contain all the songs mentioned in the setlist(s).
Note: a song can exist in multiple collections (and setlists)

The problem I had (no idea if it still exists) was that I didn't create the collection first.

What you can't do is create a collection that just consists of setlists (like a subfolder of setlists)

Geoff