When using document libraries in SharePoint try to avoid the temptation of creating nested folders.
Edward Ferron: SharePoint Tips #1

I wholeheartedly agree! I have lost count of the number of times that I am asked why documents in a folder are displayed inside a web part. The "list" nature of document libraries is just not compatible with folders, IMHO.

I went so far as to create a document library template that has a text column named "Folder" and groups the entries on that column.