I've had pretty good luck with this. Here's what I've done:
1. For models that are in subfolders, I make sure that the model is in a namespace that can be equivocated to a folder by the Inflector. For example, /app/models/extra/product.rb would look like this:
module Util
class Product < ActiveRecord::Base end
end
or you could do
class Util::Product < ActiveRecord::Base
instead.
For controllers, do the same thing - make sure the fully qualified name will match the folder heirarchy.
There's one big gotcha, though - your routing will need to specify the full path to the controller, for example
map.connect '/products/:action/:id', :controller => 'subfolder/ products'
Then everything should work.
Jeff