I'll try to describe the bug as much as I can. It happens 100% of the time with Microsoft Office 2003 applications.
I use WinXP SP2 Japanese version and can switch between Japanese and International English IME (language bar installed). Whenever the language bar is switched on Japanese (including the case where input is in English; I know this is confusing but the Japanese IME allows English input; I have a separate English input to be able to use accented characters), choosing one of the folders in the Favorite Folder (star) of Flashfolder will result only in the file name to be highlighted with the file name (if written in English) to be transformed into the same name but using 2 bytes characters from the unicode set.
If the language is switched to English, Flashfolder will behave appropriately.
This seems to happen only in Microsoft Office applications (I use Office 2003).