this is one of the limitations of hte file manager, you may, however, create a new folder with appropriate name and move all files, don't forget to adjust folder permissions as well. All links done by file id will be preserved.

If you rename the folder using ftp, you need to perform a recursive folder sync, which will remove previous file entries and create new ones, i.e. all fileID links to files inside the folder will be lost!

We're on version 5 of DNN and you cannot rename a folder?  ummm, wow.  I would have expected that in version 1.  Just ran into the issue myself.   Not to take away from this amazing product, but again, wow