It is supported since 2.0 in both software and device firmware, if you are using ID3v2.3 tags for your MP3 files or the WMA format and have the disc number field (that's 'TPOS' for ID3v2.3 and 'WM/PartOfSet' for Windows Media tags) correctly tagged. If you don't have the disc number field tagged for your files, there's no way the sofware knows which file is for which disc. The software doesn't use folder hierarchies to detect that, and the device doesn't either.
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