Well that app x4000 mentioned indeed does sort folders half properly.. but... 50$ ;/ and no unicode support ~.~
As for Hearteater, no that problem is both in Vista and Windows 7 identical, whatever I do, folders always sort like I described when you specify "date created" or "last changed" as sorting rule. And speaking of sorting, this is by far not the only sorting issue in the explorer (Try sorting by date created and wonder why it displays the oldest files instead of a proper run-down of files and folders in their proper change date order)
External shells are always inferior imo, because most if not all applications use the windows API for folder functions, like save or open dialog.
And sadly I can not move the files, they are specific files my application needs to be outside of the folder. Think hashing functions, the hashing result file can't be inside the hashed folder. Same principle.. just even more complicated. In this case the applications I use require it to be so. It has something to do with detecting changes to large folders without having to rescan them over the network constantly, which takes like, 2 days if you'd actually hash all files to see if they changed.
But reading what Hearteater said, there must either be a major communication issue here or we have found a weird windows configuration issue. For me the order displayed is as described. But if for Hearteater it is NOT as described, then I would be very curious why it is different. I didn't change many things with my Windows Vista or Windows 7 (It's 2 pc's.. so I run both OS at the same time, Vista mainly because I have a certain app that I would have to rebuy if I change the OS ,p)
And you know what? The PROPER sorting order which is of course
File1
Folder1
File2
Folder2
File3
Folder3
(or Folder1/File1 ie, reversed sub-order)
Is not even an option in ANY external shell i know off. (Neither is it in FileBoss)