I've been seeing this issue randomly as of late. I can't tell which folder Hazel is referring to as the error message is vague — would be nice if it read "Hazel cannot find the folder "XYZ". Would you like to select…".
I'm assuming it's referring to the selected folder. Typically I see this when launching Hazel, and it refers to the first folder on the list (if it was the selected folder when last quitting the prefs). If I select another folder, and then re-select the folder at the top of the list, all the rules show up and I get no error message.