I'm not sure what folders you talking about. The PST file holds the data. The Mail Profile holds the account settings.
When you removed all the PST files, were you able to open Outlook?
I think it would be beneficial to add a new mail profile from scratch and see what happens. You will need your email account settings for this. Close Outlook. Click Start, Control Panel, Mail, Show Profiles. On the General tab, click Add to create a new e-email profile. Give the new profile a new, then click next until you get to the Server Type screen. Check your e-mail type. Fill in all your e-mail account settings. When you get back to the General tab, change Outlook's start-up option to "Prompt for a profile to be used". This will ensure you start with the new profile when you re-open Outlook. If you're not prompted, reboot and then open Outlook.
Now you can add back the PST files one at a time, opening Outlook in between, to pinpoint which one may be the problem.
If that didn't help, uninstall/reinstall Outlook.
Regarding System Restore: it's wonderful. Here's a link
that explains what it does. It is not a Full System Backup.