This was driving me nuts. I was able to eliminate the slow entering-and-exiting-rearrange-mode problem by moving all of my apps out of folders, then back into folders but not putting more than 8 apps in any one folder. (It took about 15 minutes; it probably would have been faster if I'd used iTunes rather than the touchscreen interface.)
I came to this conclusion:
*If there are 9 or more apps in any folder, then it's slow. But if there are 8 or fewer in
every folder, then it's fine. If you have multiple folders with 9 or more apps in them, it gets slower and slower.*
Joey Shambrook seems to be onto the right idea--when there are 9 or more apps in a folder, iOS 4.2.1 scrolls the little thumbnails in the folder icons in order to show some blank space--and then scrolls them back when done rearranging--whereas 4.1 did not. Why this would be so slow I have no idea.
However, this does not solve the separate issue of folders being slow to open. My iPhone 4 is still quite slow under 4.2.1 when simply
opening a folder (whether or not it's in rearrange mode). It takes 2 to 3 seconds to open a folder for me, even after doing all this rearranging. Even when I'd moved every app out of folders, and then created a
single folder with just 2 apps in it, there was the 2 to 3 second delay to open it. My iPad with 4.2.1, which has just a half-dozen apps on it, opens folders instantly.
I have about 90 apps installed on my 32GB iPhone 4.