I'm using Windows Vista with Windows Live Mail for desktop, Version 2011 (Build 15.4.3555.0308).

I noticed yesterday that all the storage folders (I had about 10 or 15) I created have disappeared.  When I delved deeper I saw that they have all been moved into folders buried under the "Recovered Items" folder.   Two folders appeared to have been created on 20th May this year (the folders have the date as the name) and all my missing folders are under here (with a few levels of hierarchy in between)

Why has this happened and how do I recover all the lost folders and emails?

I know I could re-create the folders manually and manually copy all the messages across, but this will take a while and should NOT be necessary. 

Is there a quick (or slightly quicker) fix?

I read somewhere that I should compact the messages (go to Options/Mail/Advanced/Maintenance/ Compact messages after every 1 (not the default of 100) runs.   I did that but it made no difference.

Can someone help please?  Thanks.