SCION, and thp1017 -- OK, this is a little weird, but the end result is fine, so I'm not complaining...
After seeing your posts, I hooked up my Touch, and cleared all the books that had been copied over before. I then reselected them in Calibre, and sent them over again. They were once again organized into directories grouped by author. I ejected the unit, unplugged, and waited for the Processing... to end.
And guess what -- I can see all of the books in the Library, I can sort them by title or author, and I can read them.
Unlike you, I didn't delete any of the default stuff from the unit, but I did make a backup copy in case I decided to go that far.
Chalk it up to teething pains, I guess. It may be something to do with Calibre not having full support for the Touch yet. I think that will likely happen pretty soon.
Cheers