You need a second step to hide it from Live Mesh and also to make sure it doesn't show up in your Pictures view of Windows 7, etc.

1. Sync your photos, allowing iTunes to create the folder in your Pictures folder as usual
2. Copy that folder to a location out of the way, I like to use where iTunes keeps the rest of their data (and should put the photo cache IMHO):

*C:\Users\User Name\Music\iTunes\iTunes Media*

**NOTE:** You can put it on a share or other drive if you wish, as long as you use a soft link (which we do below)

3.Create the symbolic link. I use **MKLINK** from the Windows SDK.

Open the CMD window as Administrator and type:

*cd C:\Users\User Name\Pictures*

*MKLINK /D "iPod Photo Cache" "C:\Users\User Name\Music\iTunes\iTunes Media\iPod Photo Cache"*

Then, you will see the folder appear in your Pictures folder with the familiar "Shortcut" arrow.

4.Right-mouse-click that folder and select "Hide Folder"

When it asks if you want to hide it just for that folder or all folder and files *pick only for this folder* 

**TADA!** Your iTunes (which knows the name and looks for it in code) will find the file and update the database correctly in it's new location, but any picture / file services (Zune, Windows Explorer, Live Mesh) will **not** pick up the directory.