Ummm... you can... I have 4 folders under the game menu...

PSN -

Flower
Bionic Commando Rearmed
GT5p
Etc.

Demo -

Valkyria Chronicles demo
Motorstorm 2 demo
etc.

PSOne -

FFVII
Spyro1
Suikoden

Spec. Apps -

Metal Gear Solid Database
Sudoku
Linger in the Shadows
EyeCreate

You could just sort them by format. PS3 content will be in one folder and PSOne games will be in another. Just press triangle and go to sort.
When you download a game just press triangle on it and go to information, then type the album you want it to go to [PSN, PSOne, etc.] if you wanna set it up like I do. Then you press triangle and look all the way to the top of the menu, you'll see the sort options.

Video can be sorted out into folders the same way.

OT: The XMB works just fine for me.

The XMB is fine, I don't think they need to remake it completely. Just some improvements here and there.

I LOVE the XMB

ITs really easy to use imo

Out of all the current systems I like the Wii channel system the best. It is still unorganized feeling, but appeals more to the average user.

In the end they should be developing interfaces that the average user cares for not the hardcore user. Or give multiple interface options. Would it really be that difficult? Really?

The folders on the XMB are sweet, it really helps keep everything organized.  It can be a little tedious at times to do it, but thats only after i download tons of pictures or movies

I don't own a PS3 but from what I see it looks really cool.

Hmm, shows you what little I know,  Thanks for the tip.  I haven't used my PS3 as much lately.  When did that subfolder start?  I knew it was on a wish list a while ago.

The XMB is disgusting and tried to use it on the PS3 and cant get the hang of it..The only thing about it,i like it's customizable and that's not saying much i wish every gadget and device had NXE.The Wii channel interface is the worst though ugh.

exactly XMB even won an awards

Not just any award but an Emmy Award