I had the same problem, too.
But here is a hint:
Download the current release of Mozilla (0.8) and copy the DLLs of
Mozilla into the K-Meleon dir. You now have a newer Gecko-Engine
and the favorite subdirs are working (for me, it works fine
)
You just have to copy the dlls, which are already in K-Meleon.
Seppi
http://Seppi.has.it