The fix for this is to override the core file with a local copy:

    mkdir -p app/code/core/Mage/Cms/Model/Wysiwyg/Images/
    cp app/code/core/Mage/Cms/Model/Wysiwyg/Images/Storage.php app/code/local/Mage/Cms/Model/Wysiwyg/Images/Storage.php
And then comment out the following Line 62-70
        $subDirectories = Mage::getModel('core/file_storage_directory_database')->getSubdirectories($path);                        
                                                                                                                                     
        foreach ($subDirectories as $directory) {                                                                                    
            $fullPath = rtrim($path, DS) . DS . $directory['name'];                                                                  
            if (!file_exists($fullPath)) {                                                                                           
                mkdir($fullPath, 0777, true);                                                                                        
            }                                                                                                                        
        }                                                                                                                            

So they will look like this:

/*        $subDirectories = Mage::getModel('core/file_storage_directory_database')->getSubdirectories($path);                        
                                                                                                                                     
        foreach ($subDirectories as $directory) {                                                                                    
            $fullPath = rtrim($path, DS) . DS . $directory['name'];                                                                  
            if (!file_exists($fullPath)) {                                                                                           
                mkdir($fullPath, 0777, true);                                                                                        
            }                                                                                                                        
        }                                                                                                                            
 */  

and then we want to run the following SQL Query

SET FOREIGN_KEY_CHECKS=0;

SET SQL_MODE="NO_AUTO_VALUE_ON_ZERO";
-- --------------------------------------------------------

--
-- Table structure for table `core_directory_storage`
--

CREATE TABLE IF NOT EXISTS `core_directory_storage` (
  `directory_id` int(10) unsigned NOT NULL AUTO_INCREMENT,
  `name` varchar(255) NOT NULL DEFAULT '',
  `path` varchar(255) NOT NULL DEFAULT '',
  `upload_time` timestamp NOT NULL DEFAULT CURRENT_TIMESTAMP,
  `parent_id` int(10) unsigned DEFAULT NULL,
  PRIMARY KEY (`directory_id`),
  UNIQUE KEY `IDX_DIRECTORY_PATH` (`name`,`path`),
  KEY `parent_id` (`parent_id`)
) ENGINE=InnoDB DEFAULT CHARSET=utf8_general_ci COMMENT='Directory storage' AUTO_INCREMENT=1 ;


ALTER TABLE `core_directory_storage`
  ADD CONSTRAINT `FK_DIRECTORY_PARENT_ID` FOREIGN KEY (`parent_id`) REFERENCES `core_directory_storage` (`directory_id`) ON DELETE CASCADE ON UPDATE CASCADE;


CREATE TABLE `core_file_storage` (
  `file_id` INT(10) UNSIGNED NOT NULL AUTO_INCREMENT,
  `content` LONGBLOB NOT NULL,
  `upload_time` TIMESTAMP NOT NULL DEFAULT CURRENT_TIMESTAMP,
  `filename` VARCHAR(255) NOT NULL DEFAULT '',
  `directory_id` INT(10) UNSIGNED NULL DEFAULT NULL,
  `directory` VARCHAR(255) NULL DEFAULT NULL,
  PRIMARY KEY (`file_id`),
  UNIQUE INDEX `IDX_FILENAME` (`filename`, `directory`),
  INDEX `directory_id` (`directory_id`),
  CONSTRAINT `FK_FILE_DIRECTORY` FOREIGN KEY (`directory_id`) REFERENCES `core_directory_storage` (`directory_id`) ON UPDATE CASCADE ON DELETE CASCADE
) COMMENT='File storage' COLLATE='utf8_general_ci' ENGINE=InnoDB ROW_FORMAT=DEFAULT;

SET FOREIGN_KEY_CHECKS=1;