An alternative would be to create your individual areas in topics and then just drag the documents in without putting them in folders. It is the folder feature that is taking away your popup functionality. Once they are out of the folders, you could use the database to bulk update the display settings. Again, Word is still going to download, but PDF can open in browsers. This would be the easiest way for teachers to update because they could just drag the updated document to the appropriate section.
Or use a page for each subsection and link to your documents from the page - again that will give you the display options.
You might also look at the MIcrosoft plugins. Haven't used them but maybe they will help.