Hi EvilEdna,
That's a bizarre filing system you're using! Do you actually have the address data stored anywhere that it can be used for a mailmerge? If so, you may be able to use the Individual Merge Letters addin available at:
http://www.gmayor.com/individual_merge_letters.htm
Even though this might not save the files to the individual folders, it should at least be able to give you files with usable names that you can then move to those folders.