SOLVED:
I was able to fix the folders in ERROR status by going to my.pogoplug.com and clicking on the 'Sharing' tab. Finally, I need to stop collaborating those folders in question.
Seems to me that these should automatically be removed when collaboration is originally lost.
Categories: iPhone & iDevices
Collaborating on folder 1 and folder 2. (Each seperate)
Via the mapped windows drive, drag and drop folder 2 into folder 1.
Online, collaboration goes away on folder 2. Perfect.
On the iPad, folder 2 is still listed in Collaborate Folders list (should not be). However, when opening 'Error - It appears this devce is currently unavailable.' (Tried refreshing)
Tap on Folder 1, and folder 2 shows up as expected with files.
January 10, 2012 11:54 AM

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UPDATE:
I have also confirmed when moving the folder via my.pogoplug.com, the folder also sticks in the iPad with the ERROR status. Refreshing, logging in/out does nothing.