When I play around with it a bit more, if I set the destination of the Dependencies vi's to my Common Support directory, the source distribution puts the vi's into the Library Support directory. It seems to be a work around, but I don't like it, it doesn't make sense. It still isn't obeying the destination directory that I am assigning to it. I probably won't remember what I did as a work around 2-3 months down the road when I have to look at this again. Also I don't really know if this is a repeatable work around. I just stumbled onto a way to make it work the way I want by chance.
If anyone has an explanation of what is going on or what I am doing incorrectly, I would still like to hear it.
From what I understand, all the VIs are in their respective folders, have you tried to select "Single Destination - Preserve Hierarchy" in the Distribution Settings page?. This should allow you to keep the folder structure. Please try it and let me know what you find.