Don,
Is the scalability a factor of the total number of content folders that exist, or of the depth of a particular file-storage hierarchy? I think each file-storage package instance has it's own hierarchy.
Perhaps we can get a sample of the depth of file-storage folders in use.
Hmmm, the ultimate solution is pretty simple, and gives pretty URLs for folders also. Make each folder a package instance/site-node. Obviously this won't be done for 5.0.
Because the file-storage UI only shows one folder at a time, not an expanded folder-tree like Windows Explorer, would it be possible to calculate the path for the containing folder, and prepend that to each file name?