I guess this wouldn't be related to XML or your article, it's more of a Solution. Use DevExpress' TreeList component or create your directory structure from a single table instead of an Xml file / Document.
Table Structure:
| ID | ParentID | Description | Hint |
| 1 | Null | C:\ | Root Drive |
| 2 | 1 | Program Files | |
| 3 | 1 | Windows | Root Windows Folder |
| 4 | 2 | Microsoft Office |
In this way, you have an unlimited amount of folders / subfolders by using a combination of ID and ParentID. We use this structure a lot and it's very fast an efficient. 