I'm attempting to repeat your error... 2 ideas come to mind...
1- maybe you can only use one folder.
2- permissions - as in folder 2 is located in a area that WED can access.

---- I failed to repeat the error.
Both thought 1 and 2 are wrong. I could use more then 1 folder.. And I could add a source folder from the "Windows" folder (scary !!)

This leaves me wondering if similar or repeated file names are a issue.Or File name length.