This is something which happens everytime again when you look at users who start working with SharePoint. They start creating folders within document libraries.
NOOOOO .... metadata is the way to go in SharePoint - if you use metadata you can use search, filters and custom views to organize your documents. This provides for a lot more flexiblity.
But unfortunately people are not eager to change the way they are working. So maybe it is possible to combine the best of both worlds - it would be nice that you could couple a fixed set of metadata to a folder so that when a user drops a document inside the metadata is added automatically. I know that you can add metadata to a folder - take a look at Adding metadata to a folder or Implementing folder content types . Unfortunately the metadata is not replicated to the individual documents ... interesting feature to write - anyone up for it?