Updated to flash 11, and i can not add a folder to the "trusted file location". Once i add it and "confirm" and close the settings, and reopen it, it has disappeard. I have tried a fresh install but that did not work.
Could you please check the mms.cfg available in the%WINDIR%\SysWow64\Macromed\Flash directory? Is there any entry for AllowUserLocalTrust. Just checking ... Since you have deleted that folder, chances are less.