[mjtsai]

Creating an archive folder does help because then Time Machine can create one hard link for the directory rather than a folder containing thousands of hard links to individual message files.

The archive folder is for Apple Mail, not Entourage. Entourage stores all the mail in a single database so it doesn't matter which folders the messages are in.

[tesseract]

Traditionally (and even now in most unices) hard links to directories were not allowed, in order to prevent endless recursive cases. Apple added the feature to HFS+ in 10.5 so that Time Machine could make use of the optimization you describe. There are rules about directory hard links so that pathological recursion still cannot happen: http://lists.apple.com/archives/darwin-dev/2007/Dec/msg00029...