do templates have to live in the siteroot?

Dear Macromedia,

I'm developing a site which uses nested templates and will be edited using Contribute. Everything works fine until I put the site into a subfolder so it replicates the live environment

for example inside the top level taht the site points to a subfolder: myfolder

Once I moved everything into myfolder I find that nested templates and library items dont work.

Can anyone clarify whether tmeplates and library items need to be in the toplevel of the root folder to work.

Many Thanks

Kath