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As far as I know, books placed in sub directories in the My Digital Editions directory are not recognized. Sub directories in to root directory seem to work fine. Personally, I think that the root isn't the most logical directory to place these kind of sub directories in.
My old reader (Icarus Touch, 2010) doesn't have this issue. You can place books in the My Digital Edtions directory in sub directories of sub directories.
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