Gosh, this takes me back. There was some special filename you could give a directory on Win98SE which would result in it being truly hidden, but the contents still accessible via some arcane workaround. I made such a directory on my first computer, then forgot about it, and--as in your story--eventually remembered it when trying to back up the filesystem.

Does anybody know the nature of the hidden directory hack I've referred to?

A friend showed me a trick where he typed a couple of assembly instructions in debug.com to change the DOS AUX device to something like BUX. That allowed creating or accessing an AUX directory. The converse assembly instructions would restore the AUX device and completely hide the AUX directory.

We used to make directories with just the character 255 (a hard space) as the filename. It would totally mess up File Manager in Win 3.1 (the tree would collapse when you touched the entry) and behaved very oddly in Win95/98 if I remember correctly. Maybe that is it?

Yes, I think you got it. :) https://www.dslreports.com/forum/r5309449-W98-Alt-255-phenom...

My high school (back in 2000) had a visit from a german gentleman who uploaded porn to their public ftp(!?).

When we (another student and I, also a student) tipped the Teacher-cum-admin off, the folders masqueraded as a printer in the NT file explorer. They couldn't delete them.

We recommended that they wiped the machine and disabled public ftp. (weren't that big of an issue as it was mostly a print server).