Just got the E507 and like it, sonicstage sucks because i can't put folders within a folder in my mp3 player. Anyways, when i convert some mp3's to atrac, sometimes the program just freezes, and if i can convert it, most of the time the atrac file has some weird high pitch noises in it. How can i fix this?

I tried converting mp3's to atrac3plus 64khz because it sounds just as good to me, and half the size. But there's no point if most of the mp3's don't convert correctly.

HD3 uses ID3 tags for navigation, so no folder within a folder also, and only 1 layer of "groups."

Th E507 plays MP3 natively, so no reason to transcode to Atrac. The noise you heard is probably artifacts due to transcoding. Transcoding from a lossy source to another lossy one, especially at low-bitrates, will reduce quality, and probably make the artifacts more pronounce.