This is a bit of an odd one that I haven't been able to reproduce from scratch in a fresh project; but I do have 100% repro steps in a specific Project.
This makes me believe that it is potentially not due to the folder system specifically, but potentially due to something contained within the folder attempted to be moved.

With that said, the scenario is that in a specific Project, a Folder named 'Assets' containing a mixture of image and video assets in subfolders within it, can't successfully be moved to the Project's /Root directory.

See attached video.

Repro Steps:

1) Open the 'Spectrum' Project in the InternalProjects GitHub in Noesis Studio
(note this is a recently-added Project, so you'll have to sync up and get latest)

2) In the Assets Panel, expand the 'UI' directory to reveal the 'Assets' folder.

3) Click-and-Drag the 'Assets' directory into the Project's /Root folder.

Observe how the operation can't be successfully completed.

Expected Results: Any directory can be moved into any other directory in the Assets Panel