This is a known problem. It appears that this bug has been introduced into Dreamweaver by Windows 7 and the latest Service Pack for Vista. This affects Dreamweaver CS4 and earlier. This 'bug' however, does not prevent Dreamweaver from working.
Solution: 1. Type in the correct folder name yourself. 2. Alternatively, select a subfolder, and Dreamweaver will select its parent. The bug has been fixed in Dreamweaver CS5, but a fix for earlier versions has not been made publicly available.
UPDATE:: See this article for additional details: http://kb2.adobe.com/cps/532/cpsid_53267.html
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