@fitzhugh: The file manager in KOReader is just that, a file manager. Which means it will honor the directory structure, and will not care about the metadata of stuff that isn't in the current folder. Except in very specific views, like the History menu/page, that's the main way in which content is exposed. If you prefer a flat view, you'll indeed need a flat directory structure (with the caveat that you'll have a harder time navigating it, because it's flat and there's not a truckload of quick filtering methods). KSM won't change that (we're not on Kindle, there's no way to integrate third-party readers *directly* into the base UI, an UI which is indeed flat, because it's purely based on metadata, not directory structure).
Plato does have a metadata based flat UI, if that's your main interest
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And, no, there's nothing to worry about the messages on a first install, they're just a confirmation that KFMon did its job of not letting stuff go awry because of various FW quirks
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