The actual home menu allows for folders to have a single letter on them to help differentiate them. You could have just the first letter displayed and have the full name up top.You absolutely need the text for the folders. Without text, you'll have to keep tapping on the folders to find the one you want before opening it.
Edit - custom icons could work. I can imagine a nice menu of icons with a game pad for games, a cog for tools etc etc. The problem would be if the user wants to add a folder and doesn't want to or can't find a suitable icon. It would add a lot requirements on the user to configure the launcher with the custom icons when actually just displaying the folder name as text works better.
As for icons, you could ship with a standard set and have icon files included for them. 3ds, Games, Emulators, Utility seems to be the standard file separation.