I completely avoided the library organization issue by loading 20 books at the time. Once I read them, I dump them and load another 20, and so on. Is the best way I have found so far. If I have too many books it gets too messy for me.
The software I use for reading in my rooted Touch is Fbreader. I've used others but sometimes in spite of much setting up, foreign characters don't show well. FBreader is pretty simple to set up, and reads most if not all formats.
You don't need internet access to root your Touch, but you do need it to download all the files to a computer so you can copy them in an usd card.
I hope it helps.