In my sharepoint designer workflow i create a document set when a project initiation form is submitted. the workflow creates the document set in a document set library. I'd like to organize a folder heirarchy at the ROOT level so that document sets are created in specific folders. I want to do this because in TFS i have the Documents show up in classic folders. without having a root heirarchy the flat list of folders grows too quickly and is unmanageable. i've attempted to create folders within the document set library at the root but when navigating into them i don't have the option of creating a document library. HELP!
Document Sets are not meant to support hierarchical folder structure and any kind of tweaking (though possible via some tricks, such as WebDav folder copying, etc.) you are in for trouble. You should rely still maybe better on creating your own custom content types - based on Folder CT but with custom attributes (e.g Area, Iteration columns - if you are talking TFS).
Then you could enable Metadata based navigation and in addition to that benefit from Content Organizer which could, based on the custom content type attributes, re-organize physically your files/documents. You are in charge of the rules and it happens as soon as attributes are configured. Also, by configuring Default Metadata at each Folder level, you could ensure that child documents inherit metadata just by being placed in a respective folder.
i added the Document Set content type to the allowable content types for my folder content type, and i was able to create the folder heirarchy manually, then programmaticly create the document set instances to the right folder node based on rules in my infopath form, through workflow. works perfectly.