What is the best way to structure URLs?

[rodhull]

I have read a lot of conflicting advice on this, so it would be interesting to hear what your views are. What is the best way to structure URLs for SEO purposes?

Some people say that pages should be close to the root of the domain. So we could have:

mysite.com/product-one-keywords.html
mysite.com/product-two-keywords.html

But others say that a logical URL directory structure should be used, such as:

mysite.com/category/sub-category/product-one-keywords.html
mysite.com/other-category/sub-category/product-two-keywords.html

I much prefer the look and organised structure of the second method, and the ability to get extra keywords into the full URL. But, does the fact that the product name keywords are then further from the root domain have a detrimental effect?

Has anyone scientifically tested these two approaches?

[McWorkcast]

personaly I'd go for

www.example.com/product-name1/
www.example.com/product-name2/

as a good structure for seo