One small correction: the user (me) was converting to CS3, not CS4. Chances are that the process works the same for CS4, but that is untested.

Also, as Bill said, the file structure must be present at both ends, but I would like to clarify that files in the Cache folder and Transcodes folder do not have to be sent (these can be quite numerous and large, so that may be a relief for someone). And the actual media assets do not have to be present - Encore will inquire about the location of the assets, but you can just select "All Offline" and relink them when the process is complete. Finally, as I said in post #8, if the user who has 1.0 and CS3 keeps their original file structure in place, files sent to them after conversion to 2.0 can be just what is listed there; other files in the structure are not modified.

Hopefully this thread will be helpful to someone in this situation.

And I want to publicly thank Bill for helping me with this - my situation was made more difficult that normal because of the presence of Japanese filenames and such, but he was patient and helpful.