It would make sense to extend categories (and tags) to include the Directories feature. I think it would also make sense, to avoid confusion to relabel the "categories" in the directory feature as "folders" (as they already are in the MyTiki bookmark feature).
It's a pity you can't use tags for directories as they probably are the most flexible and powerful way of organizing and structuring data. I have often been shot down by many individuals on the Internet (not TikiWiki related) when requesting hierarchical grouping structures. The response has always been, "use tags, tags can do anything that other organization structures can do". At first I was very skeptical, as I suppose it has always been ingrained in me to organize things hierarchically. However, I've experimented with tags a lot on a social bookmarking site and have come to conclude that they are indeed very powerful if used well and are a very welcome edition to TikiWiki. Now, we just need them across all features!