That's not a system folder and I know you can delete it if there's nothing in there that you need. I believe it's related somehow to replication, but I'm not an Exchange admin, just a developer.
Make sure you create the library following the instructions at http://support.microsoft.com/?kbid=244591
. The only reason I know of for that error to occur is that you aren't really the folder owner or the folder was created incorrectly.
Is this a mail folder? If so try publishing a Post form there and see if that work. If not it's permissions.