

What iTunes will then do when adding from a CD or from the store is look for a folder for the artist in the default iTunes/iTunes Media folder:

It makes sense to leave that as the default.

It should also create a sub-folder in there, named iTunes Media (or possibly, iTunes Music). If my memory serves me correctly, the Destination Folder choice, while installing iTunes, is simply where iTunes will place music that you subsequently copy from CD, or import from the iTunes Store.
