For anyone who wants to remove “Photo Library” from their iPhone, they may have failed to do so. Unfortunately, you cannot remove the “Photo Library” album from iPhone. If you do so and de-select the sync photo album, all your custom added photo albums will be deleted also. Beware.
All photos inside your sync photo albums are created into Photo Library. You can remove it by having only ONE custom make photo album on your iPhone. Once you have more than one photo album, the “Photo Library” will show.
I don’t know why Apple make a folder like this and it is kind of annoying sometimes. If the new Apple iOS could fix this issue, doesn’t it sounds good?

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It still wont let me but I need to delete over 900 photos
Hi Cody. One of best way is to upgrade to iOS 5
This still does not work as of 5.1 version of iOS. It still creates the Photo Library Directory as well as the others. I wonder if it means that the photos take up twice as much space.