Library Conundrum: 'Arrange By Folders' is Missing in Custom Library!

[crazyguy1]

A year ago, I created a custom Library and have been using it successfully until the beginning of this week (11/7/2011).

The library's folder location is similar to the following:
C:\Users\USERNAME\FOLDERX

Now, when I open the Library, it shows a listing of all of the files found within all of the folders in that library; that is, imagine a book separated by chapters (folders), and now all of the pages are scattered (files) in one cardboard box.

On the top right of this Library window, I have the following "Arrange by" options:
-Date modified
-Tag
-Type
-Name
----
-Clear Changes

On the "working" libraries, such as 'Documents,' there is a "Arrange by Folder" option, which is what I am attempting to have the custom Library emulate.

I have deleted the custom Library and tried to reestablish it, but the same issue persists: I cannot sort the Library by folder, rendering it useless.

Is there anyway to have the "Arrange by Folder" option reappear?
Did I accidentally switch some setting, or is this due to a Windows Update?

Thank you.

 

[kegobeer]

Did you create a new library with the same name or a different name? When you go to Libraries, and you right click and select properties on Documents, do the attributes match what you find when you right click and select properties on your new library?