I have discovered a rather fundamental "weirdness" of the system.

Depends on what is normal, though. To me it's a feature..I'll explain. (though to be fair I haven't looked at the behavior at the toplevel. My toplevel is static).

So it's almost as if MLO is treating a Folder as if it were a Project. i.e. MLO is 'filtering in' the Next Action within the Folder as if it were finding the Next Action within a Project. Now, if I had ticked the "This is a project" box on the directory then that would make perfect sense. However the "This is a project" box is emphatically not ticked!
Yes. You probably can find a way to modify the view using ProjectName <> empty if you need it more restricted.

MLO is not a direct implementation of GTD, it's multi-methodology. Granted it's confusing because some of the terms were adopted and expanded. Next action I believe was a term adopted from GTD, but it is not a concept used only by those following GTD.

But GTD did not originally define the term "project," clearly. (And uses it rather non-intuitively, I think). So one person's scope for the term project can be different from another's. I only mark a few things as a project - my big projects that I want to track separately from my other tasks. Some people mark every task that is broken down further as a project but I found that cumbersome. Instead what has evolved for me is a system of Areas of Focus in my outline (and only Areas of focus). My "top foci" for the moment get marked as projects when I want to separate them out into their own views, but they live under one of my main areas.

Here's my use model from two years ago.
http://stroyan.net/lisasblog/2012/mylifeorganized/
(I'm sad to admit it, but now I really am not following it ....let's see...I have...ack, 224 tasks in the Inbox. Even I didn't realize how bad it had gotten. I've been abusing my poor Active starred task view into the ground. (Partially because it's -- now this is a quirk IMO-- the only manually sorted active view that the sort order sync's to Android in v1). )

Either way, surely we don't want to see "Next Action by Folder" because the folders are just supposed to be merely containers for subject areas and they do not indicate that something is actually a live Project!
There is no requirement that folders be only for subject areas in MLO. Is that an assumption or poor documentation? You certainly may choose to use them that way. My toplevel folders are full of unrelated tasks and projects.

Mainly I use folders for ongoing collections of tasks rather than finisha-ble collections of tasks. So for example, my Daily Routine never gets completed, even if all the tasks are completed for the day. (Ha. right.) It can have a "next action" if I order the tasks in the way I like to do them each day. Though for practicality, I usually just pick them off as I remember and do them.

Did you know something can be a folder and a project? Not sure I've seen any use models that do that, though.

Lisa

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