--- a/browser/components/places/content/editBookmarkOverlay.js
+++ b/browser/components/places/content/editBookmarkOverlay.js
@@ -850,16 +850,21 @@ var gEditItemOverlay = {
       if (!selectedNode ||
           PlacesUtils.getConcreteItemId(selectedNode) != container)
         this._folderTree.selectItems([container]);
     }
   },
 
   onFolderTreeSelect: function EIO_onFolderTreeSelect() {
     var selectedNode = this._folderTree.selectedNode;
+
+    // Disable the "New Folder" button if we cannot create a new folder
+    this._element("newFolderButton")
+        .disabled = !this._folderTree.insertionPoint || !selectedNode;
+
     if (!selectedNode)
       return;
 
     var folderId = PlacesUtils.getConcreteItemId(selectedNode);
     if (this._getFolderIdFromMenuList() == folderId)
       return;
 
     var folderItem = this._getFolderMenuItem(folderId);
@@ -966,21 +971,20 @@ var gEditItemOverlay = {
     }
     return tags;
   },
 
   newFolder: function EIO_newFolder() {
     var ip = this._folderTree.insertionPoint;
 
     // default to the bookmarks menu folder
-    if (!ip ||
-        ip.itemId == PlacesUIUtils.allBookmarksFolderId ||
-        ip.itemId == PlacesUIUtils.unfiledBookmarksFolderId) {
-      ip.itemId = PlacesUtils.bookmarksMenuFolderId;
-      ip.index = -1;
+    if (!ip || ip.itemId == PlacesUIUtils.allBookmarksFolderId) {
+        ip = new InsertionPoint(PlacesUtils.bookmarksMenuFolderId,
+                                PlacesUtils.bookmarks.DEFAULT_INDEX,
+                                Ci.nsITreeView.DROP_ON);
     }
 
     // XXXmano: add a separate "New Folder" string at some point...
     var defaultLabel = this._element("newFolderButton").label;
     var txn = PlacesUIUtils.ptm.createFolder(defaultLabel, ip.itemId, ip.index);
     PlacesUIUtils.ptm.doTransaction(txn);
     this._folderTree.focus();
     this._folderTree.selectItems([this._lastNewItem]);