Got it sorted out. It was a problem with my syntax after all.
INCORRECT: Folder1/50%button-lowres.png+100%button.png+200%button-highres.png
CORRECT: 50% Folder1/button-lowres.png+100% Folder1/button.png+200% Folder1/button-highres.png
Now Im able to generate assets into my proper folder structures
it WOULD be nice if I could simply name a group "Folder1/ 50% file1-lowres.png+100% file2.png" and both of those generated files would go to Folder 1 subfolder. ah well. just glad its working now