This behavior might occur if the content provider does utilize the permissions to the sub folders? Have you overridden the CheckDeletePermissions(), CheckWritePermissions() and CheckReadPermissions() methods? These methods are not required to be overridden but it is highly recommended to do so. Also, the CheckReadPermissions() methods was introduced in version 2010.2.826 of the control.
To be able to provide more to the point answer we will need to examine and debug the custom content provider locally? Could you please provide a sample runnable project implementing the provider?
the Telerik team