I’m sure underneath it’s a really complicated issue to solve, but I totally agree that it’s extremely restrictive and finicky the way it’s implemented right now.
Coming from the film side of things I’m used to expecting things to break when I move assets on the disk file system, but within an editing project the folder structure that’s represented in the project itself is abstracted from where the files’ are actually being stored. This gets around a lot of the fragility and rigidity that comes from trying to maintain a 1:1 relationship between the physical file structure and how you want to organize things representationally within the project.
Collections get us partway there in unreal, but they are missing the hierarchical nature of folders so it’s not a full on replacement.
I think epic should look at decoupling the folder views inside a project from the on-disk asset folder structure entirely. It’s how nearly all Film, Editing and Animation packages handle this problem and it is a whole lot more flexible.