I keep everything on the Kindle organized in Folders. I have Fictionwise Purchased Books, I have Amazon Purchased Books, I have Misc (for free books and other etailers), and Periodicals.
I have a couple of hundred books in there. I back the whole thing up to a folder named "Kindle" on the PC. The books are not stored anywhere else. The Kindle connects to the wall/computer daily so I'm always to browse for my next book, and then just sort by title and I can find it with the press of a button. If I convert books but the Kindle is not on, I save them to a "To Load" folder. I leave the originals in the "Originals" folder (see how that works?

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BTW I store nothing in the Kindle, everything's in the memory card (4 gig so far). I have a lot more of that in books but that stays in my 32 gig thumb drive that I got just for books.