How can I create Folder like Structure with n Key Value Pairs?
If its just hierarchial text/numbers/whatever content you want under "folders" you could try the built-in Book module. And then re-theme its display to have "parent" pages appear as folders and child-pages be your value fields (or pages). The nice thing you get here is some pre-built templates for "folder" indexes at every depth of the folder-tree.

Also the built-in book module supports HTML export and is pluggable so you can write your own custom book_export_xml() function, see:
book.pages.inc book_export($type, $nid)

Be aware drupal (book) pages nest at most 8 levels deep I believe by default -- I think there are work-arounds for this in the DB to go deeper (perhaps unlimited).

Or, you allow each user to have their own Taxonomy in drupal and try to use like Field Collection to allow users to create many values under a single term in the vocabulary.

Taxonomy sounds like it might meet your needs -- but you would likely have to make custom code something to allow users to create X number of taxonomies only they can see and manipulate.

Just fyi -- there is always a "maximum" in any dataset you have hardware constraints (RAM and harddisk) and can only store so much and still be responsive for the enduser. So be realistic and set yourself a max value, say 999 values per Key ....

Drupal can probably do what you want but it will take a fair amount of research.