um.. seems i have the same problem. but im working on server2k3sp1.
when i select a folder, and i have the 'recurse subdirs' on, imgburn asks about the root directory, then makes a wild calculation and voila:
I 19:47:04 Operation Started!
I 19:47:04 Building Image Tree...
I 19:47:04 Calculating Totals...
I 19:47:04 Preparing Image...
I 19:47:06 Image Size: 2.752.512 bytes
I 19:47:06 Image Sectors: 1.344
I 19:47:06 Operation Successfully Completed! - Duration: 00:00:02
all folders are added but not a single file
im using the latest version of imgburn and it is going to be a UDF disc (ISO9660 isnt working either)