Connect the phone to iTunes and select the photos tab. You should be able to deselect the “for iphone” folder and it should be removed on the next sync.
Isn’t it a “smart folder” (show all pictures with properties X)? I would assume it contains every picture in your library. But yeah you should be able to deselect it in the place where you do your syncing.
Well it’s an apple thing. On a mac pictures are saved in iphoto the same way music is saved in itunes. Smart folders are like smart playlists in itunes - creates a collection of files from your library with the same criteria (all songs by this artist, all songs from this decade, etc). The files themselves aren’t duplicated, there’s still just one file in the library, the playlist is just a reference to those particular files.
If it does work like a smart folder, then it’s not like there’s two copies of each picture taking up space on your phone, they are just two different lists of the same files. So if your objection is memory or duplication, that’s not a problem. If you just don’t like there being multiple lists I’m not sure what to do if deselecting the list in itunes doesn’t work. It may be an iphone thing or a PC thing - I’m able to select specific photo groups in the itunes syncing screen, but I have an ipod and a mac.
This thread might be helpful to you - looks like people use a bunch of different methods for syncing photos on Vista, which you might try, and there’s also discussion of the ‘official’ method which has some benefits.