Currently none of the Index Block renderings provide a good way
of accessing that set of data from a folder hierarchy. The way
you've outlined indexing from a higher parent location and setting
that as a choice on the Index Block asset would be how you'd go
about getting that data for building your navigation. You're
correct that using that type of solution would index far more
assets that you'd like/want/need.
a new idea to our Idea Exchange that I think might help solve
that problem. Feel free to vote it up and comment on it so we can
get more feedback.