[robko]

Just to clarify: if you're looking for the directory structure to show up in the stock firmware then NO, Kobo does not display your directory structure. It won't change it and you can use it to keep track of your books in file explorer, but it does not show up in the library view of the Kobo etc. You can use Calibre to automatically populate collections (not sure what's involved in turning a directory into this in Calibre)
There are some alternative readers that can be installed on Kobo's (no rooting needed) that will allow you to display your books in a directory structure while using the device.

And the reason this doesn't make a Kindle or Kobo unmarketable is that there are obviously lots of people who don't care (i.e. me) or it's not a deal breaker for (all those who own a Kobo or Kindle). Lots of things I'd like the device to do differently, but my desires don't rule the market.