Picasa is very nice program by Google to manage photo collections. However, sometimes it is useful to "reset" Picasa to factory settings, especially when you move lots of files around.
*** WARNING *** This procedure will destroy your Picasa settings and your albums.
The first thing to do is to delete the Picasa database and albums.
Exit Picasa and go to %USERPROFILE%\AppData\Local\Google\ (in Windows Vista or 7) or to %USERPROFILE%\Local Settings\application data\google\ (in Windows XP) an delete the Picasa folders.
After this, there is still metadata in ".picasa.ini" or "Picasa.ini" files in the image folders.
Open Windows Explorer, choose "Tools" -> "Folder Options" in the menu, go to the "View" tab, and select the "Show hidden files and folders" option.
Search for *picasa.ini files, check if only the right files were found, and then delete them.
This will completely reset Picasa so you can start fresh!
References: Google support thread 1, thread 2