Today I learned that not everyone seems to be aware about the fact that subfolders in a Pages library of a site based on the Publishing feature are not supported with MOSS 2007. The correct solution to implement a hierarchy in a publishing site is to use sub sites and not folders in the Pages library.
Details about this limitation can be found here:
SharePoint Server 2007 does not support subfolders in the Pages library. Although the Pages library can be configured to let you create subfolders, many of the Pages library features will not recognize any subfolders that you create. For example, the form that is used to create new content in the Pages library will automatically save new content in the root of the Pages library. This behavior occurs regardless of the folder in which you click the New command.
Or use metadata on your pages, and build custom navigation. We’ve found that that works, but it is a bit of work to build.
It can be useful, though, as you only have the one actual site. URLs are misleading, though.