Because Console is a 32-bit application, on a 64-bit system, it is getting fooled by File System Redirection. Specifically, when I do "dir \windows\system32", I'm actually seeing the "syswow64" directory. "dir \windows\syswow64" fails. "dir \windows\sysnative" gets the real system32 directory.
This is startling to someone who has been using cmd.exe, but this is easily fixed, by using Wow64DisableWow64FsRedirection before interpreting file system paths. I think that would be a very useful modification.