Hey crbu,
I think I speak for everyone when I say that we ALL have a love/hate relationship with our computers. lol!
For your iTunes, is it the most recent version or the one before that, or earlier?
Also, I tried adding a screen shot to help a bit but there is a reflection of the love/hate relationship happening from my computer to me. 😉
Under the Photos tab, where it gives you the option for:
Sync Photos From (should be like the first thing you see on that screen; left hand side)
is there a drop down menu there that gives you the option of Pictures or Choose folder?
If not, this could potentially be the problem and you may have to uninstall and reinstall iTunes (I may be wrong with that doing that but honestly, that's what I would do), and see if that changes anything. If not, then you may need to contact Apple on this one, just cause it should give you the option to at least choose syncing either pictures or from a specific folder.
I hope that helps in some way.
If not, and you are able to find another way, make sure to update us here so we know what to do when that happens to us (cause odds are it will; lol).
Good luck!