If you're running Tiger, I'd take a look at launchd which can, amongst many other things monitor paths for changes. This would save you from having to wrestle with AppleScript's "quirks", at the cost of having to write Yet Another XML File.

There's some introductory stuff here:

In reply to Re: How to do a blocking readdir or similar by john_oshea
in thread How to do a blocking readdir or similar by bigcreeklinn

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