Well, you definately have to look at the WMP12 end, because when running the alternative Tversity DLNA server, the ' menu' as they call it can be adjusted by changing xml files at the Tversity end. That way, the default way of showing things ("artist","genre","year","album" and so on) on your DLNA client (TV, X-box and so on) can be changed to just show the plain folders in which the media is stored.
I'm interested in changing the default WMP12 behaviour also (never got the playlist way of organizing media i must admit

)