I currently suffer from this problem found on the known issues list:
Issue: I moved a Live Mesh folder to a new location (or renamed a Live Mesh folder) and now it's no longer synchronizing.
Workaround:Go to the Live Mesh notifier and click the folder you want to synchronize again. You can select the new location in the dialog box.
After I moved the folders, they retained their blue folder look but no longer trigger the Live Mesh pane, stopped syncing, and shortcuts have re-appeared on my desktop. I could just delete the old folders and recreate in the proper place but this would of course require downloading (again) the full content of those folders. To make matters worse, the contents of the folder(s) is primarily managed by another user on another PC. Does anybody have experience with selecting the old folder as the sync location and "merging" those folders after changes have been made to the folder from a different PC?