The Windows file system cannot store all attributes of the Amiga files (i.e. file notes and protection bits). WinUAE stores these attributes in files called _UAEFSDB.___. The handling of these UAEFSDB files was very buggy in previous releases of WinUAE. Deleted files reappeared as phantom-directories etc. The only solution was to delete the UAEFSDB with all its consequences.
It has become quite stable recently, though, so using a directory is not as bad as it used to be.
So for a fully compatible backup of your Amiga HDD you should use an archive like LhA or a HDF.
But I agree, for normal every-day work with WinUAE, directories are much more flexible.
There are some programs which need the compatibility of a HDF, though. For example MakeCD always looses its registration when used from a directory. Therefore I usually create a small HDF for my boot drive which holds all programs which should never loose their attributes or need a HDF for compatibility. All other drives are Windows directories.
Bye,
Thomas