OK - I think I figured out what is happening.
1) The radio ignores empty folders. Therefore an iTunes-like file structure of Artist/Album is useless since only the folders with files in them will be displayed.
2) The folder and file order is determined by (I believe) position within the File Allocation Table for the drive. For a freshly formatted drive, this would be the same as file creation time, but as things are deleted, the operating system will recover sectors on the disk and the order will not be what is expected. I figured this out when the order did not match the file creation or modification timestamps.
3) Be aware that both Windows XP or Mac OS X do not always copy files in the order they appear to the user (usually sorted alphabetically). So grabbing a handful of files and dragging them over to the USB drive may not preserve the order intended. Unfortunately that means copying them individually to be guaranteed of tracks appearing the correct order on the radio.
Net result is that neither file/folder name nor tag info is used by the radio when you browse the contents of a USB drive. However, everything works exactly as expected with a supported iPod. Therefore, IMHO, a USB drive is most useful as a collections of "playlists", i.e. folders with collections of tracks that are intended to be played in no specific sequence (shuffle mode in iTunes-speak). USB drives are a poor substitute for an iPod for large music collections where you want to access specific albums or songs.
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