This is a Joomla! 2.5 installation. In Joomla there are many functions that require thea system to pull up all the images in the images folder, and sub-folders, so you can pick one and put it into an article, or whatever.
The hacked folders contained hundreds of text files, so the image loader bogged down and basically did not function. On top of that, some images were not showing up on the site, like the main header logo image! and some social networking icons, the main images in rotation, etc.
So the site looked crappy and for days, the only thing I could think to do was keep trying to delete those darn files. I tried renaming the folders, which worked, but accomplished nothing. I tried to remove all access to those folders via .htaccess. That only seemed to make things worse.
I contacted my hosting provider, in the middle of the night and got a response from them indicating their late night support guy had no clue. He actually told me they were system files being generated by joomla. Really?! System files in txt format piled a mile deep in my images folder?... What a moron! They had names like ten variations on : "daemon-wp-blogs.txt" and "daftpixie-host.txt." Please explain to me how a normal Joomla installation uses those files!!
So, I finally hit upon a clever and simple idea. I downloaded, via FTP, everything good in my images folder. So, that's everything except the hacked folders. I put them in a folder called "images2" Then I re-uploaded the new "images2" folder, renamed my old images folder to something else (anything will work) and then renamed my new folder to "images" Presto! Everything worked great again.
Tomorrow I will contact the owner of my hosting company to make sure his people get some better training and maybe we can get rid of those hack folders once and for all.