HI Jan, thanks for your reply. I removed folderId from the config of all these outside files and then they fall in right folders. Some config files had both entitySet and folderId but not all of them ...so no consistent pattern there.
Answering your questions:
Do you use the default filesystem store? -- Yes
Do the entities go outside the folders also physically there? --- No.
If not, would you be able to compress data folder and email it to me without confidential entities? --- I don't have bad data folder now as after removing folderId from those files they don't spill out anymore. Otherwise version 2.6.0 seems good.
Thanks,
Rashmi