No, they do not need to know about the filesystem. Take the iPad or iPod as examples. They have full-featured applications and the filesystem is invisible.
Having the iPod hide the file system is the number one complaint I hear from people who own one. It works "okay" as long as you stay within Apple's ecosystem and can completely bomb if you venture onto other hardware/software/use cases.
Well, I can't disagree with your anecdote regarding complaints (although I have owned both iPod and iPad since they were released and have never had a problem beyond the iTunes file transfer flow being awful), BUT the constraint to the Apple ecosystem and the iTunes flow are implementation details orthogonal to the actual hiding of the filesystem (i.e. it is easy to see how Apple could make file sharing easier without introducing the concept of a filesystem).
How do you copy a bunch of documents and pictures to a USB drive if you don't have a full filesystem? "USB drives are outdated, use the cloud" is not a valid answer so don't even bother saying it.
Maybe I was unclear in my earlier comment. The best way of implementing file handling is likely some full full-featured filesystem under the hood. My point is that this can be abstracted away to something more user friendly than a tree containing hundreds or thousands of folders and files. Transfer off a device obviously needs to be considered, but exposing a device (e.g a USB drive) as a hierarchical filesystem is usually unneccessary (and, IMO, counter productive from a usability standpoint).
My point is that this can be abstracted away to something more user friendly than a tree containing hundreds or thousands of folders and files.
It's apparently hard enough that no one's been able to provide a better solution to the general problem yet, only specific instances. (No, the iPad doesn't count because it doesn't even have a USB port.) So instead of researching pie-in-the-sky solutions (which is incidentally what MSR does), they've decided to invest resources in something that we know works to the extent that it does.
The iPad provides the ability to connect an SD card, which fulfils a similar use case... but discounting the iPad, OSX Lion takes steps away from the filesystem, with all the files openable by a given application visible a la coverflow with a flick of the wrist. It also does away with the saving metaphor in many apps, further distancing the user from filesystem concerns. In light of this, it would seem more a matter of will than being "too hard" or "pie in the sky".
