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hmmm, you list folders:
Those look 'in order' to me. Are you saying that you have folders for 2007, 06, 05, 04 – that are now somewhere else?
One thing to know about folder order is that a folder is assigned a date based on the earliest date of the pictures inside the folder. For example, I have a folder where most of the pictures are from June 2006, but because one picture was from Feb 2001 when the folder was created – the Folder takes on the date of Feb 2001 – and is sorted accordingly. You can change the folder's date by double-clicking on the folder name – this brings up its properties. This is where you can change the date to whatever you want.
Also, let's be sure we're talking about the right 'Sort' button. When you say you sorted by Creation Date – where exactly is that? To sort folders, you click on the drop down arrow at the top of Picasa's folder list and choose 'Sort by Date'