This has been a frustrating experience for me, but I'd like to share my solution. It has cost me quite a few CD-Rs to figure this out. I bought a (rather cheap) MP3-CD car audio system. For my first MP3 CD, I created a playlist in iTunes and drag and dropped 700Mb worth of tunes into it. Burn and play, no problem. But subsequent MP3 iTunes-burned CDs wouldn't play in my car.
The difference: the first few were 'flat;' all 160 songs were on the first level of the CD. All the CDs after those first used folders to divide artists, and in those folders used new folders to divide albums, etc. My car audio MP3 player got confused. For the life of me, I couldn't figure out how to burn 'flat' MP3 CDs in iTunes. I used Toast to burn selected iTunes songs, but they all ended up in alphabetical order, so that was no use.
The solution: create a (smart) playlist in iTunes, fill it up and sort on artist or album. Create a new playlist in iTunes, DO NOT sort on anything. Select all songs from the first playlist and drag them to the second. The second list retains the sort order of the first one, without any activated sort order in the playlist itself. Burn MP3 CD. Result: a 'flat' CD.
It seems that as soon as you sort a playlist on anything in iTunes, any MP3 CD burned from that list result in neatly organized MP3 CDs that are unfortunately unreadable by my car MP3 player. Only fresh, unsorted playlists result in all files on the first level of the CD.
[robg adds: This hint is sort of the opposite to this older hint, which explained how to use playlists to create the subfolder hierarchies.]
Mac OS X Hints
http://hints.macworld.com/article.php?story=20040326105053236