I get the HRESULT E_FAIL dialog and an unavailable project in Visual Studio 2008 when I add a subdirectory to the WiX project. It doesn't matter if there are any files in the subdirectory or not; as long as they are in the .wixproj file it will happen.
For more info and screenshots see http://statestreetgang.net/post/2008/05/WiX-30-Hates-Subfolders-in-VS-2008-Projects.aspx
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What build of WiX do you have? I fixed a Votive bug very similar to this sometime around mid-April. The latest build handles subfolders just fine.