I figured it out!
I am using a Sprint HTC Hero version 1.5 and I synced my phone to my PC (windows xp home edition service pack 3) and I simply opened the DCIM folder. Then I opened 100MEDIA, made a new folder and gave it my desired album name. I then right clicked and cut, hit back to the first page where it shows all the folders like DCIM, .footprints, .mail, etc. and I right-clicked and pasted. This new folder(album) will show up once you unmount and open up Albums application and it'll show up with the name you gave it. Hope this helps!!
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