Why does iTunes keep creating these folders?

Another cute quirk from Apple's iTunes app!

Now iTunes is creating these two-character folders in my Music folder. Does anyone know WHY this is happening, and if it something that can be fixed? I am not sure when these folders get created, but I think it's when I play a song.

:

So, this is what is left in the main Music directory, as shown in Finder, after manually moving most of my songs to the correct location.

Can I now delete all those two letter folders and move the remaining music from here to the correct location?

This is how the music library looks now: