It won't show up as as folders unless you build the USB device to the specifications that the system uses
Ie, if you just chuck a load of tracks onto a USB stick without creating the right tree, you won't be able to view by folder
What the USB feature DOES do, providing all of your tracks have the right gracenote and tags; is allow you to view by artist and by album, or by track name etc. For me, it works flawlessly, as I'm able to choose artist > album - I can't think why anyone would need more granularity than that?