You appear to have stored the files in a location where Lightroom doesn't have full permissions (i.e. our files\pictures is probably being blocked)
I uninstalled LR 4.1RC. I then went reapplied the security settings on the folder with the images. I reinstalled LR and still have the same error. As an aside, I did notice in the import function it shows proper folder trees.
This is also the same folder that PSE 10 has been using for years (in various versions) so I was did not think this would fix it but it is worth the try.
Any other thoughts?
I have tried a number of things which did nto work. When I look at a folder and show parent i get the same error.
This seems to be a bug. Is there a place to log bugs in 4.1 RC?