Interesting discussions (Mart Muller) here and (Edward Ferron) here about SharePoint Document Libraries, specifically when to use folders and when to use metadata. One of my first ever posts explored this discussion, but from a permissions perspective, just to pile on to the discussion, I thought it might be worthwhile linking back to it:

http://blogs.msdn.com/danielmcpherson/archive/2004/04/02/106554.aspx