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I think Harry stated the situation correctly in his last post. The Reader is designed for reading books from beginning to end. It does this superbly. It is, in many respects, a better tool for reading than a paperback, and that is saying something. It is small, light, easy to hold, convenient, and has re-sizable text for those of us who are getting older. It also remembers where you left off in each of your books.
Let me give a brief, practical example of how useful the Reader can be. A couple of weeks ago I quite unexpectedly ended up in the ICU of my local hospital for 4 days. (I'm absolutely fine now.) The Reader was an absolute life-saver. I read about 5-6 books without having to recharge at all. I had everything I needed to keep me occupied for many many unpleasant and sleepless hours in that little box. Much easier than sending someone home to grab a bunch of books. It's also much easier to read in bed with than a book, especially when the person reading is wired for sound.
All that being said, it certainly is, and will always be, a niche product. It is primarily designed for serious readers, and there simply aren't that many of those. I am very happy that the Reader basically does one thing and does it very well. I don't want it to connect to the internet, or display my photos, or keep my schedule, or even display any possible file. (Standardization of ebook formats would be very nice, though.) When I'm reading a book, I don't want to be distracted with all that. If I have to take a little time to convert a book into the Reader's format or fix up a PDF, big deal. I'll spend more time reading it than I spent getting it in shape.
I, too, would prefer an hierarchical file system. However, a nice cover that had storage for a few SD cards would go along way to limiting the need for one.
I think many people will never really see what the big deal about the Reader is. "All it does is display words? That's it?". Yes, that's it!
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