We received numerous requests from our customers asking us to allow Magic Folders to hide folders normally hidden from the user with the System attribute. In this way you can hide folders such as your "Favorites" list in NetScape and Internet Explorer. Reluctantly I agreed. System and/or hidden folders (if any) are listed in a box below the normal folder listing. Just drag the desired folder from that box to the list of Magic Folders.
Keep in mind that we can only hide the files, we can't control how programs, or Windows, will react when they can't find your hidden files. All sorts of serious trouble could occur. If you encounter any problems at all with Magic Folders and you have hidden/system folders in your Magic Folder list then remove them from the hidden folder list and see if the problem goes away.