Is there a way to add folder organization within a workspace?  From what I can tell right now, all files have to be placed into a flat space.  I would like to organize the files into some type of grouping using folders (i.e. Live SkyDrive lets you create folders within folders).  Having all files in a flat space will get confusing after some time.

There's no way right now. You're not the first person to ask for this though so I suspect you will be able to one day.

Ummm... bummer that folders can't be used.  BTW... in Word 07 I did a File > Save As  and saw the nework location for my Workspace listed.  So I selected that and then clicked "New Folder" in the dialog box.  Locked up i.e and Word solid and I had to kill the programs.