I tested the latest version 2009.2.826 of RadEditor and I was unable to reproduce the problem. The Image Manager paths was set to point to the root of IIS
<telerik:RadEditor ID="RadEditor1" runat="server">
<ImageManager ViewPaths="/" UploadPaths="/" DeletePaths="/" />
and the file browser properly loaded the folders in the IIS root. For your convenience I have attached a video demonstrating my test.
the Telerik team