Something else you might look into is nxhtml-mode; it doesn't fold code, but it does highlight mixed code (i.e. HTML and PHP) differently depending on its type. That gives you a similar gain in comprehensibility without the awkwardness of folding-mode. I think that approach is more suited to Emacs anyway, first because code-folding seems like a mouse-oriented idea that doesn't adapt well to the basically keyboard-centric Emacs interface, and second because Emacs eases navigating a large file to an extent that code can stay visible without getting in your way.
