What you are seeing is a bug that was introduced by Microsoft's Vista SP2 update (and Windows 7 from what I hear, but I don't know as I don't have access to 7 yet). The issue is basically that if you select a sub-folder when you're in the folder selection dialog, the dialog will report back the parent folder path, not the folder path you selected. Adobe is aware of this issue, and it's not just our extensions that are at issue, it is any time within Dreamweaver you browse to a folder. For example, if you define a new site, specifying the folder to save the site within can have this same issue.
We hope that Adobe will be able to correct this issue, but for the time being the solution is to enter in the folder name yourself, or create a sub-folder with the folder you want to select, and select that sub-folder.