good question. but i think that my way of organizing is pretty practical:
first, i make a bunch of folders with typical radio stations (varies for everyone) such as kroq, star, kiis, power, etc (for those of you in southern california).
secondly, i make a folder for all the artists i have w/in the radio station folders. for example, if i have linkin park, i would create a folder for linkin park in the kroq folder. then i stick all the songs by linkin parkin in the kroq/linkin park folder. i label each song artist.title.mp3.
third, if i have the entire album, i create a folder for that album w/in the artist name. for example, for hybrid theory, all the songs are in kroq/linkin park/hybrid theory/(all songs).
i guess the preference is different for everyone, but i think my way is pretty organized.