I'm not sure I'm quite grasping the organizational problem, but it sounds to me like your files are improperly tagged. In that case, what you want is something like
MusicBrainz or
Tag&Rename. Personally I use the latter so if you decide to use that and need a few tips to get started (it has too many buttons but it's a great piece of software), let me know.
Basically, what tagging software let's you do is select a folder of audio tracks (ideally that represent one album, which is I believe how you say your library is organized), pull track info down from Amazon or other CD info databases, and then tag the files. Once you have re-/tagged your files, all you need to do is go to the File menu in iTunes and select "Add Directory to iTunes..." and select the main folder where all your sub-folders reside. Then close and re-open iTunes. It will rescan all the tracks and have the tag info that you added with T&R/MusicBrainz and you will be be able to organize by artist, album, etc.
iTunes 7 has new sorting options (right click on track(s) and select the Sorting tab [it's called something like that]) and you have even more sorting options.
I think it's misguided to say that iTunes does everything for you and doesn't give you any organizational choice. I know where every track in my iTunes library is on my HD because I have it set up to manage files in a way that makes sense to me. I have my music organized by artist most of the time, but I have smart playlists for things like "Added in the last 30 days" organized by date added, "My Top Rated" organized first by rating, then artist, lists with genre, track length, and track rating limitations...the possibilities are myriad. MaloCS is spot on.
Once your audio files are properly tagged, they're totally portable to any media software that supports id3 tags (basically everything). Want to switch to WinAmp? It supports id3. WMP? ::shudder:: Supports id3.
For the record, I have over 10,000 tracks in my iTunes library, the vast majority of which I did not rip myself.
Hope this helps.