Folder file quantity issue

After two years of having no problems uploading as many images to a directory GoDaddy is telling us we cannot exceed 1024 files/folders per directory.

Problem is we have 12,000 images in the main uploads directory and the same in thumbs1 and thumbs2 directories(different image sizes).

1.) Has anyone ever heard of a host restricting this?

2.) Is there a way I can split these directories up and maintain proper linking?  Move images and run a sql query?

Any help would be appreciated!

- Jarrod