There are certain types of drives that Picasa refuses to list in its "Folder Manager" – generally these are drives formatted with the exFAT file-system, commonly used on USB sticks.

There are two possible workarounds to handle the issue:

1. Manually edit watchedfolders.txt

If you locate and access:

C:\Users\YOUR-NAME\AppData\Local\Google\Picasa2Albums\watchedfolders.txt

You'll notice it looks like this:

D:\Photos\
D:\My Documents\
C:\Users\Simon\Desktop\
D:\Videos\

You can manually enter the paths to the folders that you want automatically scanned within Picasa.

Unfortunately if you later remove a folder from this file, it may not remove it from Picasa - it may only stop Picasa from repeatedly scanning it. For more control, you might like to use option #2.

2. Map the external drive to a local folder

The workaround for this is to map the external drive to a folder on another valid drive, such as one using the NTFS file-system. To do this:

1. Right-click the Windows Start button
2. Click Disk Management
3. Find your external drive in the list
4. Right-click and choose "Change Drive Letter and Paths..."
5. Click "Add"
6. Create a new empty folder on another valid drive (one that is displaying in Picasa correctly), and choose that as your mapped location
7. In Picasa, choose Tools > Folder Manager and now add the new folder that you created. It should now contain all the files from your external drive.

Just be aware that if you later launch Picasa and your external drive is not plugged in, Picasa may think that the files have been removed and begin to wipe all memory of those photos (including thumbnails and other saved data). This is only the case when Picasa can no longer find the relevant folder, NOT when Picasa simply cannot find the entire drive. For this reason, you may prefer option #1.

Final note for drives mapped to B:

There is a quirk where Picasa refuses to access drives A: and B:. If you happen to have your external drive mapped there, it's best to open Disk Management and assign it a different drive letter, or follow the workarounds above which should also work.