@Hopskinny: Good to hear, I dont have an XP system to test on, so I had no idea if it would work.
Test these things as well:
1) Deleting books from the device. In particular check that empty folders are removed after deleting the last book in a folder.
2) Switch to the device view in calibre and right click books to add them to the calibre library, or view them from the device directly by clicking the "Click to open" link in the book details panel on the right.
And, of course, if you feel like configuring where on the devices the files go you can play with the driver settings by right clicking the device icon and selecting "configure this device".