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Mobipocket doesn't support folders. You can put the books in folders all you want, it will show them all in one big list. It doesn't matter what version you use, desktop, or mobile, none will support folders.
ureader (I believe the name was), does support folders. but I don't like the application as you must pay for it, and I never got the highlighting to work. I've not tried any other reader application, as I like the ease of use of the highlighting of Mobipocket and I've not found any reader which does that (easily).
The other question, if you know the answer, I'd love to know it as well (though, I almost never reset my device, so it's not that urgent).
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