I did a search and couldn't find anything about this.
I'd like to point to a folder and have WDTV play all the music in the folder and subfolders. Is that possible?
The only way I can figure out is basically a work-around. When your hard drive is connected to your computer, make a playlist in the parent directory and include all music that's in the sub-folders. With the library mode activated, the playlists are available.
I like to use Winamp which can be downloaded for free from winamp.com. It's an all-purpose media player app. With your hard drive hooked up to your computer and the folders visible in explorer, drag the music you want in your playlist to Winamp's playlist editor. Then click on the "File" heading on the top of the editor box and save the playlist to the hard drive that you will hook back up to your WD.