I have an update to this post. After further investigation, it appears that no folder were actually deleted. They were just removed from the Folder List view on the Windows Live layout (i.e., View > Layout).
To correct:
To get my folders back in the Folder List I did the following:
- In the Folders List window, select the very top level folder (i.e., Local Folders). This will display all folders in the primary display window on the right.
- As you open each folder, they will be added back to the Folders List on the left.
- Go through each top-level folder, selecting it and add it to the Folders List. If you add a folder, its sub-folders should be added also, but verify.