My (C#, .NET 3.5) application generates files and, in addition to raising events that can be caught and reacted to, I want to display the target folder to the user in a form
If you are happy being Windows Vista only and wrapping a COM control, IExplorerBrowser might be acceptable for you needs.
This The Code Project article shows its use within an MFC program but at least one other person seems to have got it to work in C# after some effort.
The newer API exposes considerably more programmability than simply intercepting messages, but it is (obviously) useless for older platforms.