It is very confusing for users to discover that in Sharepoint when they put alert on whole folder they do not receive alerts when there are new files or files have changed in that folder. In WSS 2.0 alert will be sent only if folder itself changes (let's say name of the folder changes). It looks like it was fixed in WSS 3.0. Bad news: upgrade to WSS 3.0 is not just several clicks.
correction: it is not fixed, but slightly improved. You will receive updates if you place new files, but not when a file is updated.