Yes, if you are using your own folders in instapapers, they won't show up in this recipe. But you can add them easily in the same way, as "Loved Articles" was added.
Just find this line in the recipe:
Code:
feeds = [(u'Instapaper Unread', u'http://www.instapaper.com/u')]
and then add something like this inside the square brackets:
Code:
(u'Folder Name', u'http://www.instapaper.com/u/folder/numericalidentificator/folder name')
you can find the exact link by simply hovering over the folder in instapaper sidebar. Just copy it and insert as explain above and articles from this folder will appear in instapaper recipe feed as a separate section.
Also, note that the numerical indentificator in the url between /folder/ and /folder name is always unique for each folder - it's not linked to users account or anything, be sure to copy-paste it all correctly.