I'd like to try to reproduce that. So, yes, if you'll send me the .zip file I'll test with a SD card on real hardware (instead of in Hatari). I might not be able to test on a real Atari until next weekend or the weekend after that, though.
The test case I made for this has uncovered an EmuTOS bug though, which I'm currently fixing. However, this bug would not have affected in which situation you get the error message. I could only - under certain circumstances - cause EmuTOS to crash after getting the error message about the folder depth.