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6,500 seems like an awful lot - based on the average book length, the T1's estimated to hold 2000-2500 books in its memory. When you say 'stories', do you mean they're all short stories, rather than full-length books, or do you have them on an SD card? If the latter, that is likely to slow it down.
I don't think it does do hierarchical collections - I tried it out when I first used Calibre, and found that using more than one tag just meant the book was listed in more than one collection. I don't bother with that now - I just have them listed with one tag.
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