Just had a quick play with My Movies, and it looks like you can point to either the VIDEO_TS directory or the next one up. But, I added 95% of my movies using the standard My Movies Import/Folder Content option. This scans through an entire disk (or selected folders) and sets up the database records itself (sorry if this is all familiar stuff). In this case, it has set up records at the <movie name> level, not the VIDEO_TS subdirectory. So it behaves consistently regardless of video format, there is a <movie name> directory which can contain either a VIDEO_TS sub-directory or an AVI file.
This has been useful for me as I have compressed my rips down to AVIs, I put the AVI in the <movie name> directory and delete the VIDEO_TS sub-directory. I don't then have to change the address in My Movies.
Also, My Movies auto-monitoring of folders does not work if the ripped VOBs etc are not in a VIDEO_TS sub directory. I'd accidentally put the files in the <movie name> directory, and auto-monitoring (and Import Folder Contents) did not find them. I added the VIDEO_TS sub-directory, moved he files, and the next time I ran My Movies, auto-monitoring picked them up, and created the database entry. And it points to the <movie name> directory, not the VIDEO_TS sub-directory.
So it looks like I could go in and change all of the Disc Location fields, but I'd have to remeber to to it for every title I add in the future. It would be easier if the tool followed the same approach as My Movies itself and reconciled the different ways in which the two applications like to reference the files.
Sorry.