Hi Chris,
How are you setting up this project--what specific steps are you using? What are you doing to add the folder named "B"?
I was able to successfully create a project using this file structure. I created the directory hierarchy as you described it and placed a single java file in each directory.
I created a new workspace and project in SlickEdit, and then I used Project > Project Properties to add the files. I selected the Files tab and used the "Add Tree" button to add the files. I did it once for the A1 tree and once for the A2 tree. I didn't get any complaints about a duplicate folder.
In the Files tab, my file list looks like this:
Project2.java
A1\Project2.java
A1\B\Project2.java
A1\C\Project2.java
A2\Project2.java
A2\B\Project2.java
If anything, it should have complained that I copied the same file to every subdirectory.
Let me know what steps you are taking to set up your project, so I can try them and see if they work for me.
If you haven't tried "Add Tree" or "Add Wildcard", give them a shot--they're way fast.