Oh, erm … you can't rename folders in Google Reader. The workaround is to move all your subscriptions from one folder to another folder, then delete the original one. Here's the steps:
- In the Subscriptions panel, select Manage Subscriptions. The Settings page should be displayed.
- In the Settings page, filter your subscriptions by the name of folder you want to remove using the Filter by name, folder, or URL text box.
- Using the Change Folders… drop down list for each subscription, select the new folder and unselect the old folder. Note that for the first subscription, you have to create the new folder.
- After reassigning all the required subscriptions to the new folder, select the Folders and Tags tab.
- In the Folders and Tags, check the folder you want to delete, then press the Delete selected button.
- This posting is based on these instructions How To Rename And Delete Folders (Tags) In Google Reader.