and a quick Google search for " Outlook Express flashing folders " shows no similar cases at all

So, I am in the dark here.

What has changed on this system since this started happening, any malware, any software installs or software uninstalls? Any Outlook Express Add-ins added?

Are these folders full? According to Microsoft Information about the maximum file size of the .dbx files that are used by Outlook Express, that maximum is 2GB. Those flashing folders may indicate that the dbx files are now at their limit.

Mark