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I used to use that, but it's such an eyesore. ADW Launcher offers something much better: you can customize how many rows you want your homescreens to have. Instead of the default 4x4 homescreens, you can have up to 8x8. Yep, that's 64 icons per screen or four 4x4 widgets.
I put in two rows of more icons widget and I agree, it does look a bit ugly, and it takes a while to find the program without the name underneath. I think there was another one of these widget types of programs that had one big regular icon, but opened up a popup to show the widgets inside like a folder. I'd use folders, but I couldn't figure out how to rename them. I also like sense and the htc widgets too much to go to another launcher.
Sound like you want Apps Organizer. Free from the market. You can label each app, even with multiple labels (eg, Multimedia, tools, internet). The Label then becomes the name of the "folder / widget" icon on your home screen. Of course, you get to keep Sense, as this is just an app/widget.