This is certainly an exciting time for those of us who have found ourselves hampered by Leopard's superficial silliness. Of the Leopard features I complained about in "" (2007-10-26), three have already been skewered by good old user ingenuity.
Here's how you use Quay (the name, by the way, is evidently a pun on "Dock"). First, drag any folders out of the Dock so that they vanish in a puff of smoke. Those old folders are Stacks, and are just what we're trying to avoid. Next, start up Quay. For each folder you'd like to see in the Dock, instead of dragging it directly into the Dock, drag it onto Quay's window; Quay then produces an icon (which you can customize quite extensively), and you drag that icon from Quay's window into the Dock. When you've populated the Dock with folders, you can quit Quay.
Now, with any of those Dock folders that you created with Quay, if you simply and quickly click the folder's Dock icon, a hierarchical menu of its contents appears. This menu is actually better than the old Dock hierarchical menus were: the menu for each folder can be sorted by name, date, or kind, and the menu's items can have small, large, or no icons - plus the menu can optionally display invisibles and/or package contents. To determine these menu display options, Option-click the folder icon. To open the folder, double-click it. What you should not do is Control-click the folder icon, or hold the mouse down on it for any length of time, because that will display the Dock's own menu for the item instead of Quay's.
That brings me to how Quay works its magic. This is largely guesswork, but I take it that what's going on here is that the things you're putting into the Dock with Quay are actually documents, not folders at all. (That's why they live in the correct location, the right side of the Dock, where both folders and documents go.) The originals of these documents are created behind the scenes by Quay, and are stored in your Application Support folder; they are concealed inside a package so you can't accidentally mess with them. When you single-click on a "folder" icon, since this is really a document, what happens is what always happens when you single-click a document in the Dock - the document is opened by the application that owns it. That application is not Quay itself, but an invisible background process that lives inside Quay's package. The invisible application's response to one of its documents being opened is to produce the hierarchical menu representing the contents of the folder to which that document is tied. (That's why Quay itself does not need to be running in order for you to use the Dock "folders" it produces.) Double-clicking a "folder" is seen as an attempt to open the same document twice in quick succession; the invisible process interprets this as a request to open the associated folder.
Quay is not perfect: For example, you can't Command-click on a "folder" in the Dock to reveal it in the Finder, and sometimes you can't double-click a "folder" in the Dock to open it either, because after the first click the hierarchical menu appears and, if it's large enough, it blocks the Dock so your second click can't get through. And the double-click feature is unreliable in other ways: Sometimes I find that it reveals the folder without opening it, and other times it opens the folder. In general, the double-click feature is unreliable, and it would be better if the hierarchical menu itself included options either to open or to reveal the original folder. Plus, of course, you can't drag an item onto a "folder" in the Dock to copy or move that item into the actual folder, because the thing in the Dock is just a document and no application is even aware of your drag. Finally, the Quay documentation warns that "Quay may get confused if you have several copies of it scattered around;" that's a little worrisome, since, with Time Machine making backups of everything, there certainly will be multiple copies of Quay (the documentation goes on to warn you to prevent this).
Nevertheless, the Quay approach is elegant, simple, and fun and easy to use, and of course this version is just 1.0; so I recommend that you give it a try. Quay costs 7 euros (about $10 at the moment); you can it as a demo, but until you register, the hierarchical pop-up menu will work only on one of your Dock "folders."
Now if only someone would do something about the darned tiny type and icons in the sidebar of Finder windows!