We have three boys and two girls. All clothing gets folded as it is being taken out of the dryer. Takes a little longer to switch loads but saves you the trouble of having to fold it all later (it is also more efficient as we were already pulling them out one by one and laying them flat to avoid them getting wrinkled. Now we take the extra second to go ahead and fold it). This simple change of folding on the way out of the drier easily cut our laundry time by more than half.

All of the smaller items (socks, underwear, rags, towels) get thrown into one large basket and my wife and I spend about 45 minutes on Wednesday night folding and sorting those.

In terms of keep the cloths separate, this has to be decided on purchase. Different brands/ types for different kids. For example, I know one of my boys gets all the "Cars" underwear and the other gets the "Lego Star Wars" underwear. You have to be consistent or you can spend more time separating clothing than actually folding it.

I do like the idea of getting the kids to start folding their own clothes and this is probably the next step for us.