This is how Xcode 2 and earlier used to work.
Xcode 3 works a little differently, and it does so in part for the sake of efficiency.
As you showed in your original email, the Groups & Files tree in Xcode does not have to correspond with on-disk file and directory layout. One group could hold files from many different directories.
What Xcode 2 and earlier did was take all the files in Groups & Files, and attempted to find out individually if they were under directories that were under SCM. For large projects, this might take a long time.
What Xcode 3 does is assume that it should check the status of all files within what's called the Project Root. By default, an Xcode 3 project's project root is the directory which contains the project file. In your case, for both project file 1 and project file 2, this is the directory you call "project 1".
However, you can change the project root. Brint up the Project Info window (via Project -> Edit Project Settings). Near the top is an entry called "Root", which is set to "<Project File Directory>". Click the "Choose" button in the same row, and you will be allowed to choose any directory that directly contains the project file:
Other Directory 1 (Can't be project root)
+----Other Directory 2 (Can't be project root)
Super Super Parent (Can be project root)
+----Other Directory 3 (Can't be project root)
+----Super Parent (Can be project root)
+----Other Directory 4 (Can't be project root)
+----Parent (Can be project root)
+----Project File
So what I would suggest is that you put all the folders that you specify above inside a single parent directory, and change the project root for both project file 1 and project file 2 to be that parent directory.
-- Andrew