This doesn't help you because you don't own one, but I'm running a Rio Central with Rio/Dell receivers, and it supports hierarchical playlists. But... only if you edit it with Jemplode exclusively. If you edit it with regular emplode, it breaks the hierarchy and messes it all up.

I hope at least one of the third-party receiver server products supports hierarchical playlists. It would be a shame if they didn't.

Do you only have the one Empeg for being a networked music player? In that case it might be easier to just leave it as a 2.0 empeg player and load tunes onto it.