Can anyone clarify how Outlook 2011 allows one to pick the location for new mail folders?

I have a POP user that has successfully moved all of their email from Entourage to Outlook 2011 and is now using Outlook.

All of the filed mail folders from Entourage appear on the left side of Outlook - under Deleted items

However, the only option we have to create new folders under the inbox or INSIDE one of the existing folders.

How do we create a NEW folder under Deleted items?

I setup my Outlook with a POP account, and I can simply click on the heading for my filed mail - called "filed mail."

That works fine.

For the user in question, there is a blank line under Deleted Items, then their first folder (created in Entourage) and that folder name starts with multiple spaces...