I used OD2 Plus for a while, but a better one IMO if you're willing to pay is
WinStep. It includes 3 different ways of setting up your apps.
1. NextStart - It can either be a bar to replace the start menu and task bar, or a right click menu (or both)
http://www.winstep.n..._thumb_nextstart.jpg2. Workshelf - This is a dock that has shelves (which are the folders that you ask for)
http://www.winstep.n..._thumb_workshelf.jpg3. Nexus - A separate dock that's more like the NeXT type of dock that can have fly out folders.
http://www.winstep.n..._thumb_nextstart.jpgAll of them allow you to display either the content of folders, manually generated content, or even special folders.
I'd say give it a look. It's not cheap ($29.95), but it does everything that you asked for, and I like it. I'll post a screenshot of my desktop when I get home.