With the help of somebody on the Apple support forum, the problem has been solved.
The solution is simple:
- Shutdown Mail.
- Delete or rename: /Users/username
- Start up Mail.
It may take a while to synchronise your folders, but it will do it eventually.
This seems to be related to the automatic update that Mail.app v3 makes to the v2 mailboxes.
Hope this is helpful to somebody.... :-)