I had a similar problem today with an install, when I browsed to the destination through a shortcut in My Network Places. The files were installed to C:\Documents and Settings\User\NetHood\Share on Server, rather than the network share (\\Server\Share).
It looks like you would need to delete the current SyncToy folder pair, then create it again. If you browse through Network Places to the remote computer, then to the share, it should get you to the right place. Or, of course, you could type in the UNC (\\Server\Share) path.