The Live Mesh team has posted instructions on “how to manually resolve “Folder conflict issue”, these issues (files stopped synchronizing or files appearing to be missing). Here’s the recap:
1. Determine which of the devices in your mesh holds the most recent files affected by the bug. From now on I’ll call this device A.
2. On all other devices: stop synchronizing the Live Mesh folder(s) affected by the bug, locate the folders on those devices and rename them to “[foldername]_backup”
3. On device A locate that same folder(s) and set it to synchronize if not synchronizing already (with Live Desktop only!) and wait for synchronizing to complete. You can watch that by opening the folder and click on Synchronized devices. Once it’s finished solve the conflicts, if any, by clicking the notification in the Mesh Bar and following instructions given.
4. Look for missing files. If you notice any files missing compare the folder on device A with “[foldername]_backup” on the other device(s) to see if they are in there. If any copy them to the re-synchronized folder on device A. Also check the recycle bin on those devices to see if any ended up in that.
5. Once it’s finished synchronizing, the Live desktop will have a clean copy of the folder, which you can now set to synchronize with the other devices again. If you are asked to merge with an existing folder choose NO. You want a clean new folder, so rename the folder that already exists on your device to “[foldername]_backup” instead.
6. After synchronizing has finished all should be repaired and you can delete all the “[foldername]_backup” folders as there should be nothing in it you need anymore.
More info: Live Mesh Forums