Peter,
At a guess, I'd say the logic employed went thus:
1. find the lowest level directory containing music and/or coverart
2. look one level up for the "album" name
3. look one more level up for the "artist" name
4. if music or coverart is found at either of those two levels, repeat steps 2 and 3.
Since the Bulk Upload requires that you point the browser at a specific folder, Chrome refuses to look any higher up the tree than that for security reasons, hence the warning and the "Unknown" artist.
When there's a .mirror folder, it results in a directory structure that looks like this:
artist(dir) -> album(dir) -> tracks + .mirror(dir) -> tracks
To fix that without messing up other kinds of upload, ".mirror" would have to become a reserved name, i.e., it would be treated differently from all other directory names. If anyone starts a band or releases an album called ".mirror" the whole system breaks.
Inasmuch as "Export" doesn't export the mirror files, and "Import" doesn't import them (does it?), perhaps Bulk Upload is the wrong tool to use when you already have them?
Cheers -- m.