I found the answer - in a roundabout sort of way.
In addition to my usual Windows 7 drive I also have a "backup" Windows 7 drive using a separate and legitimate copy of Windows.
I use it to troubleshoot any problems on my main windows 7 drive and test stuff out.
I booted into it and had the same problem with Libraries with missing Folders and Files.
In one case when Arranged by Month said "empty folder" I knew something basic was wrong.
As a hunch I "took ownership" of the root picture folder and voila!, everything started to appear. I gave it a few minutes and Arranged by Month and everything was there.
Thanks to the Take Ownership shortcut i got from Seven Forums a few years ago, it's all fixed.