Yes, WP’s handling of URLs is very poor… the plugin isn’t regarding your parent “album” as a “track” — that’s just how WP handles this by default. It treats each post individually as a “track” or “post” or “album” or whatever… but WP doesn’t support the hierarchy very well, especially when it comes to URLs. The 404s are due to WP’s strange way of handling URL requests. I’ll have to rewrite that to get it to work with friendly URLs — this is why I listed that feature as “experimental”. I had a feeling WP would mess this up, and it did.
Much of the stuff I’ve done with this plugin has required that I rewrite portions of the WP core, which is extremely time consuming. WP is not a very good CMS as this point (in my opinion)… I’m trying to make it better by this plugin, but if you want sensible and flexible URLs, I would recommend that you use MODx Evolution instead. It’s not as plug-and-play as WP, but holy smokes, it’s so much easier to structure non-blog sites using MODx than it is in WP.
Many people have confusion on how to structure a WP site, so you are not alone. I would recommend you simply use my other plugin (Summarize Posts) to summarize whatever posts you need on a parent page. It agrees with WP much better.