I am not sure how an unrooted T1 does in that situation. I have my T1 rooted and use Coolreader on it, and yes I have folders and subfolders, which I can organize however I want while the device is hooked up to the PC, using the file manager on the PC. I had over 5000 books on the SD card and it was not slow at all, the search function would bring up a book in 1 or 2 seconds.
You can use Calibre to create collections using tags, there is a thread about it in this forum. Those are not hierarchical though.
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