No one said you have to put everything in one folder and categorise separately... that is just being willfully argumentative! Absolutely create a folder structure and file away your media... I do. And that way you can use BOTH the meta-tag sort mode AND the Filename sort mode depending on circumstances.
I don't understand your fixation with "live" browsing... you said yourself your library sometimes updates as much as daily! So what, the Filename sort mode updates every 2 mins, so the most your "live" directory browsing is going to be out by is around 2mins, which frankly is amply frequent if your library files are only getting updated as infrequently as daily!!
And be aware that file systems where not designed as categorisation systems, and are uniquely poor at being used as such. By definition all file systems are single-dimensional - meaning a file can only exist in a single location (and thus category) without resorting to multiple copies or links and shortcuts. This is a very simplistic taxonomy. Tagging systems by design are multi dimensional - meaning a file can be assigned to multiple different values in the same category and have any number of categories.
Say you have a file that is both a horror and thriller, and 720p and movie. Do you create a specific horror & thriller genre under your movie folder? What about action and adventure, and fantasy? How many combinations of genres do you create folders for because the file MUST exist in just one folder. Or do you create individual genre folders, place the move in one, and then symlink it to all the other appropriate folders, so that you can still find it? What about combinations of 1080i/p/720p/etc do you have folders for each under each genre? Can you see how ridiculously complicated this is becoming to achieve what is very basic and seemless using meta-tags?
I don't know where you got the idea that rebuilding your core means you have to redo everything - I suspect that you haven't really played around with LinuxMCE all that much and are trying to impose preconceived ideas. All meta data is stored both in the library database and either in embedded id3 tags (for mp3s) or parallel ID3 tag files for other media. Rebuild at will with no fear whatsoever... when the core rediscovers your media it will reimport all your metadata, good as new!
If we are to compare "other alternative" out there, lets get a few things straight... the mainstream competitor is Vista MCE, and that works in pretty much the same way, there is a library database, and the default views access this to provide a metadata-categorised view in exactly the same way. So you can sort or group by artist, or year and so on... and no that isn't "live" either, Vista periodically rescans its library in the same way. Lets not overstate it.... LinuxMCE's Filename sort mode may not be truly "live" but for almost all purposes it might as well be.... and one of the reasons for it being handled like this is so that all your media sources around the house can be overlayed and merged into a single location even in filename mode.... Vista cannot do this.
LinuxMCE has plenty of quirks, and missing features in managing media, but this realistically isn't one of them.
