There is a problem in wss 3.0 with sp1 – forms folder in document library can not be deleted or removed no matter if it is first level folder or subfolder for document library. This problem resolved in Update for Windows SharePoint Services 3.0 (KB941422), (the name of file is Wss-kb941422-fullfile-x86-glb.exe).
URL to download:http://www.microsoft.com/downloads/details.aspx?FamilyID=78549f3c-3cd2-445e-9dc0-417ca5a4a079&displaylang=en