Well I finally figured some fixes for this. All this Photos, Music, Vides, etc..  is stored in the "media player" folder for your user account. It's just like the db for the music in MCE 2005.  You can wipe it clean by removing all the files in C:\Users\<username>\Local Settings\Microsoft\Media Player\

Issue # 1 with fix: I see root drives in pictures&videos (c:\, d:\, e:\. etc...)
Exampe:
1) Add e:\photos to watch folder
2) e:\photos now showed up in media center
3) I stopped watching e:\photos (removed it as a watch/monitor folder)
4) e:\ shows up now as the folder

So either this is a bug or what they MS decided to do. If you add a folder and then stop watching it, media player/center will still retain all the data in the library, just the path will no longer be monitored.

FIX: (this may not stay fixed though.. since this is a monitored folder, it may add the files after time)

1) Open Media Player
2) Click the  icon below the  "left arrow" button on the top left..
3) You can now change between music, pictures, videos, recorded tv and shared media.
4) Click on whatever media you want to remove from the library.. my example was pictures..
5) Click on FOLDER (sub item under library)
6) I know see e:\ (from the example at top)
7) click delete (and make sure to click the option that says remove from library ONLY)

Now this will remove the media from that category, but I don't know if down the road it will readd them since these are "monitored" folders.

Here is another solution for a problem I had.
 
Problem: folder.jpg files displayed from my music folder in the photos category.

Solution:
1) Open media center
2) select Pictures view
3) go to library, folder
4) right click on  your music folder you added and click delete. (make sure to delete only from the library).
5) This WILL only remove the photos from the library and not your music since you are "Pictures" mode.