Can someone pls explain this to me??? (Re: syncing)

I've had my iPhone for a week. I have a Windows XP machine. Since day 1, I have a folder in My Documents>My Pictures called "Wallpapers" where I put pictures that I use as wallpapers on my iPhone. I have 24 or so pics in there.
I sync everyday and in iTunes sync "Wallpapers" is where it syncs from and I then I have a folder called "Wallpapers" in the Photo Albums on my phone.

Today, I noticed it taking an extra long time to sync. It see its copying all my pics over. Once its done syncing I see in Photo Albums a new folder called Photo Library and my Wallpapers folder. Both have the same pics.

In iTunes I see that "Sync from" is not checked anymore. I recheck it and it says something like this will delete all pics on phone and update w/ the ones in the folder. I resync again, and I still have a Photo Library and Wallpapers folder w/ the same pics.

I uncheck "sync from" again and resync. I did it 2 more times when it finally only put the Photo Album folder and deleted the Wallpaper folder on the phone.

Why??? Why was the 1st week I had the "Wallpapers folder and now I have the "Photo Album" folder on the phone?

 

Anyone?