At the moment items (‘papers’) show the folders they have been added to via 'Filled in '. No such indication exists for shared folders. As I use folders for projects, and some of my projects are collaborative, items are not classed anywhere but in the shared folders. Hence it would be very useful to identify the folders an item is in at a glance.
A potential UI solution for this that would be lighter on the (already crowded) item cards would be to highlight (e.g. via a little vertical colored bar) the folders in the hierarchical view to the left. If those highlight boxes/bars would be on/off buttons (sort of checkboxes) that could almost replace the current folder drop-down, although admittedly the interaction with hierarchical folding has to be thought through. I suggest three box states: filled (item is in folder), unfilled (item is not in folder or descendants), half-filled (greyed), item is in a descendant.
A further suggestion (feel free to spawn a separate thread) is to merge local vs. shared folder trees; shared folders would be identified by some UI element. Again the embedding relationships are the issue here.