I always try to keep common files together; e.g., menu files in /menu5/, all graphics in /images/, etc. If I need a sub-directory for a different part of the site I may or may not put an /images/ file in there just for that sub. Depends on how deep and complex that section will be. Something like putting the salt in one cabinet and the pepper in another across the room - makes no sense.
Some folks say it's extra work (they just dump everything in the same directory), but to me it's better organization which makes things easier all around.
I don't think I have the file loaded in the root. In fact I do not know what this means.
If I remember right your arrow statement said simply "arrow.gif". That means the system expects to find it in the same directory as your .htm (.html) files (the root level). Other graphics were located in wfo_files/xxx.gif, or whatever, and even some other locations. Confusing.