Jason, if you encrypt your backups (which you should be doing anyway), you won't be prompted for the passwords on restore (at least it works for email, WiFi, and MobileMe passwords- not sure about 3rd party apps).
The folders issue is a painful bug. I've had some weird experiences with that. In some cases it seems to organize apps into their folders on the 2nd sync after a restore. But yeah I went through the same thing when I wanted to start my iPad 2 off by restoring it from my most recent iPad 1 backup.
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64 GB iPad 2 WiFi, Apple TV 2, 32 GB iPhone 4
Early 2011 MacBook Pro 13" (dual boot with Windows 7), Early 2009 Mac Mini
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