I had a bunch of images in my Xcode project. They were originally added without choosing \"Create Folder References for any added folders\". So I removed the references and
Problem solved! Turns out that blue folder references are fine, but IB will not read them! For anyone else who cares to know, if you have the following:
/iphone-project-dir/images/pic.png
Once you've added them in a blue folder in Xcode (as detailed in link above), you can refer to them in IB as follows:
images/pic.png
In the XIB's XML it will look something like this
<string key="NSResourceName">images/pic.png</string>
Simple! The only drawback is Interface Builder's WYSIWYG preview does not process these paths!
I found the answer here http://www.iphonedevsdk.com/forum/iphone-sdk-development/6457-xcode-folder-directories.html
If you like to have your images structured in your SCM and under XCode but really doesn't mind that all images will be placed in one directory once building the final .ipa package, here is what you need to do:
From Interface Builder you are now able to pick your images without prefixing it with the folder name and you will see a preview of your images within Interface Builder.
Gives me both my IB preview and a neat folder structure when designing my app.