I cannot take credit for this. It is from an earlier suggestion but it worked for me.. Since I did not have the "delete file" Tab in iTunes that everyone speaks about, I was unable to easily delete my folders. Wasted hours and hours trying to find a solution Until I found this.
First, I backed up all my photos onto a memory stick, then deleted all the photos & the folders from my computer.
These are instructions from another member:
(0) Create an empty folder (I named mine Photo Stream)
(1) connect iphone to computer and launch iTune
(2) in the photos tab, check "sync photos from", select "choose folder", select the empty folder in step 0).
(3) Click Sync
(4) iTune will show an warning that photos on the iphone will be replaced with this new library but pictures taken by phone won't be affected.
(5) When syncing is done, those zombie albums will be gone.
(6) in iTune uncheck " sync photos from folder", and sync again.
I did change my iPhone settings so they would not sync automatically.
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I also did a backup "to my computer" rather than into iTunes and it freed up a Mega amount of space.
Hope this works for you.