Yes that is because filesystem watches that are active. Normally they allow rename of a folder but since there is a watch is a sub sub folder it fails.
normally you can rename and delete a folder with a active "watch" on.. the issue comes when you have active watches in subfolders
watching folder C:\temp and c:\temp\1 and renaming "1" from the panel watching c:\temp , that work, the watch for C:\temp\1 will automatically be dropped.
but if you move into a subfolder. c:\temp\1\2 then Windows get confused or something and will not allow the rename since there are reference to that folder that it can not drop.
From the command line field in MC you can force a unwatch of a folder.. ":unwatchfolder <path>"