ScanDisk Error Message

Each time ScanDisk is run I receive the error message below:

The Allocation chain for "Windows Update Setup Files" in the
"C:\WINDOWS" folder indicates that part of this file or folder is stored in an invalid location. Your computer uses the allocation chain to track where each of your files and folders is stored.
1. Repair by truncating the folder
2. Delete the affected folder
3. Ignore this error and continue

Choosing #1 causes the error message to repeat.
Choosing #3 allows the computer to continue to work, however, ScanDisk is run again the same error message is displayed.
Is it safe to choose #2 or should I first determine how the folder is affected, and what measures could correct the problem?
Computer= Dell Dimension 4100 OS= Windows ME