Hi Phil:
The Picasa2 folder is the database folder for Picasa3. It was named when Picasa version was Picasa2 and was never changed to preserve compatability.
In this guide we tell you how to install PS and make copies of the database for backup and to move it to another location.
It has been a while since I did all this but the basic idea is to make a copy of your database on your new drive and make it your main database for your photos from then on.
Once you have that done and working, you can open the original database and in the Picasa tools-folder manager, tell that database to only watch your C: drive Pictures folder. This should cause Picasa to re-index your database and that should compact it to a few MB instead of many GB (depending on the number of photos in the pictures folder).
Again, it has been years since I wrote the guide, so go slowly and make sure you understand the instructions, and ask if there is something unclear.
Best Regards,
Earl