It might be a silly questions - but you are talking about creating a Virtual Machine folder, right? The VM's name availability check is performed by the VC itself, and not VR. This means that the virtual machine folder you are using for recoverying is the same place where your original machine resides.
To create a VM folder, go to a specific datacenter under the VMs and Templates view, right click on the datacenter->All vCenter Actions->New VM and Template Folder. Now, when you recover the replicated VM chose this new folder.
Hope this helps.