Seems to have the same problem in Windows 8.
Microsoft: Is there any update expected to resolve this problem - namely, if I point the photos screensaver at my "Pictures" library - it doesn't recognize any pictures in the subfolders, and provides an error message saying "there are no pictures in..." along with the GUID for the Pictures library.
It's working now. I right clicked on the D: drive, moused over "Include in Library", and clicked "Pictures". Not positive that that's what fixed it, as I'm unsure how to un-include it from the library to A-B test it. But as long as it's working...
to get only a sub folder in W 7, go to screen saver. click bottom that applies. go to browser. open. select folder you want. clik Apply and then OK. May have to try seeral time. I put all pix wanted into 1 folder & then selected it.
Now, I can't get this to work on Windows 8. Can anyone help???