My guess is that folder support is not something desired by the majority of the target Sansa market. People want to hear a song by a particular artist, or a particular album. A lot of people using MP3 players may not even know what a folder *is*, let alone organize their music into folders.
I’m not saying it’s not a nice thing to have, just that it may not be worth Sandisk’s time and money to put it into the firmware.