You can manually disable it by choosing the Document Library Settings and choosing Advanced Settings, but if you are like me, you have far too many sites to worry about let alone changing this with each Document Library.
I have a solution for you, why not disable it in the template? It is pretty easy, just go to your hive 12 folder, TEMPLATE\FEATURES\DocumentLibrary\DocLib\ and edit your schema.xml. In the file, disable the folders by adding the highlighted setting to your List XML as follows:
List xmlns:ows="Microsoft SharePoint" Title="$Resources:shareddocuments_Title;" FolderCreation="FALSE" Direction="$Resources:Direction;" Url="Shared Documents" BaseType="1"
The FolderCreation option, simply chooses the No folder option in the advanced settings by default, allowing you to enable it if needed.
Once the change has been made and saved, you will need to restart IIS for the change to take effect.
Hope this helps someone out there, it took me forever to find a solution and I thought I should share it.
