any updates to IE or office recently? i think you can remove web folders from the add/remove apps in control panel in windows componets section.
from
http://support.microsoft.com/default.aspx?scid=kb;en-us;Q287402&id=kb;en-us;Q287402
Web Folders are a new Web authoring component included with Internet Explorer 5 and Office 2000. With Web Folders, you can manage files by using the familiar Windows Explorer or My Computer interface on Web servers that support the WWW Distributed Authoring and Versioning (WebDAV) or Web Extender Client (WEC) protocols. These protocols are defined as follows:
• WebDAV is an extension to the Hypertext Transfer Protocol (HTTP) that extends the base set of HTTP methods to include basic file functions such as copying and moving resources, creating folders or resource collections, locking and unlocking resources, and setting and retrieving resource properties.
• WEC is a Microsoft Office 2000 protocol that is used for Web publishing, and is usually implemented through the use of Microsoft FrontPage Server Extensions.
Web Folders is installed as a namespace (or shell) extension to the operating system with an icon in My Computer (root object in Windows Explorer) or in My Network Places in Windows 2000. This root object is a container for shortcuts to your Web publishing sites and it enumerates HTTP URLs as files and folders. You can use Windows Explorer to view, move, copy, rename, delete, create new, and sort files, a- well as group files by properties and view property sheet information for files in a Web Folder, depending on your authoring and security permissions on the Web server.