This is the CORRECT solution:
Removing and Replacing unwanted thumbnail image from System Folders in XP.
Then do the following:
Mark - Show hidden files and folders
Unmark - Hide protected operating system files
Open the folder with the unwanted thumbnail image
Delete image named "Folder"
Go back into Tools - Folder Options - View,
and MARK Hide protected operating system files
If you wish to use a new image as the system folder thumbnail,
paste the image into the folder,
and rename the image to the word Folder