I did exactly per your advice but it did not resolve the problem. I have seen the following in another thread of discussion. What do you think?
I also use Picasa and my files are neatly organized in folders.
However I use iPhoto for my screensaver. If you open iPhoto, and click Preferences>Advanced, and make sure that the upper box is unchecked, it will not copy your pictures to iPhoto Library.
Then import all your pictures to iPhoto and Bob´s your uncle: setting up a cool screensaver with the events, pictures, faces or places you want is really easy. You will still have only one copy of your pictures in your hard drive, and iPhoto will not mess with your files and folders.
You can fine the discussion at: