You can use the file manager to navigate through folders and play back music. Alternatively, create .m3u files (these get imported as "Imported Playlists" in the media player).

Martin's MediaBox (http://maemo.org/packages/view/mediabox/) does support navigating by folder I think, but it's not yet in the Extras repository. He's probably busy with FM radio, but feel free to kindly ask him to promote the mediabox package to Extras-Testing (contact info in the link above).

Or write your own media player: http://maemo.org/api_refs/5.0/5.0-final/mafw/