Hi Brian Clair
The update normally replaces the existing sdlxliff and renakes the old one so you can go back to the previous version easily if needed. But this usinally happens in the same folder, not in a sub-folder.
The exception to this seems to be if you have your files in a series of subfolders. In this case the sdlxliff file is updated and the original is added to a new folder (new every time you do it) at the language level (for source and target). So I guess this is what you are referring to?
If so I'd say there is no way other than to create your projects without that folder structure.