Too many files being displayed in one folder will result in a performance hit. So I would still use folders.
Prior to PDM we stored large groups of drawing file in single folders based on the first number in the part number (Release 1, Release 2). This was because we typically looked for drawings by part number and with no database to search this was the easiest way to find the file. We do have a mainframe database that could be search when a part number is not known, then you got a number from the search results and you find the file.
We have migrated all drawings in PDM into the same folder structure but some of the folders contain quite a bit of files and it can be slow. For example one folder has 6500 files and it takes around 6-8 seconds to display the contents when selected. Not terribly slow but when you're in and out of the folder often and adds up.
Since we can easily search by part number, we plan to move these files into a folder structure to put related parts together, more of a hierarchal product structure that the search can't give you. Then the users have another way to view the data. They can search for drawings based on: Drawing No., Part code, Section number, Description, Plant.......or they can browse into the hierarchy.