I have the same problem - 950 folders 18,000 mails.

 1) You cannot drag a folder from Storage Folders>Imported Folders>local Folders>(FolderName) to a POP account's folder list. The mouse pointer indicates that you can (no "Stop" sign appearing on the mouse pointer). After the "drop" nothing happens. Using the toolbar "Copy to" icon results in an error "Cannot transfer folders between servers". Inconsistency here.  Local Folders are a "server" ????

 2) Duplicates, duplicates.

   Using Win Explorer to check the files on disk and set up new  folder C:\(user)\Mail

  In WLM change the mail store to the new folder.

  Close WLM, files are transferred. Reopen WLM.

  Check the disk appdata\local\microsoft\WLM - mail storage files still there.

  Check new location   C:\(user)\Mail - ok  but files there as well.

   As an experiment to see how WLM recovers idexes and mails -  Shut down WLM first. 

  Remove index control files (2 of them) from the disk using Windows Explorer, restart WLM. It recovers   mails and indexes - ok

  Mails now in Storage folders> Recovered>etc>etc>etc, this includes Mail accounts and their folders       too.

  None however go back to their original locations which might be folders under a POP account.

  Check the disk - Another set of duplicates appears in  C:\(user)\Mail the originals + folders duplicated, suffixed by (1) in the folder name, created by the recovery process.

  3) There is no simple mechanism to rebuild the entire folder structure from scratch by using the files in the mail folder on the disk.

  In Outlook Express all you had to do was delete Folders.dbx, restart OE and the folder list was rebuilt.

OK you didn't have separate accounts (except identities of course), but it worked, every time.

Is it possible to do something with Item 1 above ? Drag and drop folders from Storage Folders to an account folder would make our lives so much easier. Item 2 needs clarification or addressing. Addressing Item 3 is essential and should have been built in at the design stage.

Sorry this post is so long, I hope it makes sense too.