Upquark, I found the same think in my One Drive folder. It would seem that every time Wndows Live Mail attempt to send the email, a folder is created inside One Drive, but for some reason the picture will not upload. I called my folder "Picture test" and ther must have been at least 15 empty folders with that name in my One Drive.
I'm having exactly the same error in Windows Live Mail Version 2012 (Build 16.4.3528.0331) when I try to email photos. It just started today. I have emailed photos successfully for many years, and as recently as last week. I also have many empty folders on OneDrive that correspond to the Album Names from my emails today.