When I began using Mountain Lion the slideshow screen saver couldn't handle nested photo folder. That regression from the best version of OS X was fixed in 10.8.3, but by then I'd switched to using Aperture for my slide show of child-programming images .
Aperture came with its own problems. For example, the same image would seem to get stuck on both monitors. That improved with 10.8.3 and/or running 'repair database'. Some time later though, it occurred to me I was seeing the same images more often than expected for a library of 6,000 "best of" images.
The catch, of course, was previews. The slide show feature needs JPEG images to work, and, as it turned out, only a small number of my 6000 slideshow "RAW" images had previews.
The Aperture 3 User Manual explains how to update or create previews: "Choose Maintain Previews For Project from the Library Action pop-up menu". I created a smart folder to hold all my slideshow images, chose select all then "maintain preview" on one context menu. I came back a few hours later and now I have a much larger set to view.
 My theory is that by exposing the children to thousands of images of happy family moments, they will be programmed into thinking they had a happy childhood and thus will ensure I do not suffer long in my dotage.