The first thing you have to do is to open your FreeSpace folder. Now press Alt. From the menu that appeared, select the entry Folder options, under Tools. In the window that opened now, select the "View" tab, and locate the "Hide Exensions for known file types" setting, then uncheck it.
Then select the file named fs2open_pxo.cfg.txt, and rename it to fs2open_pxo.cfg . A warning will pop up, informing you that doing so could render the file unusable, but it's OK. You'll need to do the same thing with the fs2open_pxo.cfg.txt file in your data directory.
You should try again now, see if that made a difference.
In any case, these folders can be deleted without repercussions: