Folders vs Metadata
CommunitySharePointTechnology
Bil Simser and few others have been discussing about folders and metadata in SharePoint.
http://weblogs.asp.net/bsimser/archive/2006/01/03/434454.aspx
There are some very important aspects that needs to be explored before your SharePoint deployment. I am totally with Bil about not using “folders from hell”. In our deployment I simply removed the “Create Folder” icon in the Document Library toolbar from the begining and most users didnt even realise that they could not create folders as I gave my demos to our stakeholder group by using the metadata concept. I did this on purpose so that users and stakeholders got used to the concept.