Just wondering if the change to XP could be part of the problem as by default certain "Protected" files are not allowed to be viewed in XP even when you have changed view settings to show "Hidden" files.
This could mean a single file is sitting in the directory not being seen and so not deleted when you clear the rest of the files before deletion. This could effect the right to delete the folder itself as it would not be completely empty.
Easy way to check would be to change your view settings in the main Explorer "Folder options" from the tools menu in "My Computer" to allow protected system files to show and check if this is the case.
No idea if this is the problem or even a workable solution but thought it could be worth checking out.
