Label (aka. metadata) based bookmarks orgranization is definitely the way to go. We should dump the folder based orgranization scheme completely and replace it with labels (aka. metadata), since most websites fit into many categories.
If we do decide to to use labels, we should separate it from search keywords. Also, autocomplete should be provided for label entry in the bookmark property dialogue.
Lastly, we should consider modifying the sidebar code so that it displays on top of the content pane instead of beside and force the content pane to resize. People usually only need to see the sidebar for a short period of time and resizing the content pane is very disorienting for the user.