When I *had* set up albums on both the Incredible and the SD card, there appeared two "lines". That is to say, the first listing of photos appeared as:
<all>
line
<phone album(s)>
line
<SD card albums>
If I knew how to do screenshots, I'd post it.
As to Topshelf's observation, are you saying that if you create one "album" directory and put all the other albums into that album, you will be able to drill down to a listing of those albums? That was the impression I got from the manual, but I haven't actually been able to test that.