The operation can’t be completed because “Folder name” needs to be downloaded.

Problem solved. I tried everything advised by dropbox support - unticking login items, making sure other back-up programs weren't affecting etc. These didn't work, so I unistalled dropbox (quit from menu bar avatar, dragged Dropbox to the recycle bin and did a clean up of residual items using CClean (free version), I also deleted the Dropbox folder located in the Cloudstorage folder (probably best to back-up before you do this) - to find where your dropbox flder is - right click it and choose show enclosing folder. I downloaded the latest Dropbox again and installed - during installation it said that it could not find the dropbox folder - I choose re-link. Now all the icons appear correctly (blue as syncing, green once synced) and I can delete folders within Finder - all my files are downloading/sycing from the online version, which will take a while, but everything seems to be working fine now.