What are best practices for playlists?

[viktor]

I am a returning user of Rockbox on Sansa Clip+ and this time I thought I try to get playlists right. I like to split my music in a small number of playlists depending on mood and would like for them to be easily updatable. On my computer I like to keep them in tree structured folders as: /ALL MUSIC/Artist/Album/
In my playlists I would ideally have only selected songs, not entire albums. As such I only see two solutions:

• Copy all files from the computer to the player. Then use .m3u files from the desktop player.
• Treat playlists as directories and just dump individual songs into each playlist directory on the player. Then generate a playlist from each directory.

The first option is most elegant but might become a problem if the music collection grows too much. It might unnecessarily burned the database of the player.
The second option is economical on space but means I have to copy and rename songs individually which might be a nuisance.

What are the best practices to follow to achieve this? How do you manage your music?