Good catch!
Please open a support ticket with NETGEAR. I would open one, but I already have way too many open cases going nowhere.
Be sure and give them a very specific re-creation case: "From Win7x64 PC client, opened \\ReadyShare\USB_Storage\, R-click New Folder, named it Temp, R-click Properties on Temp, checked Read Only, clicked OK, R-click Refresh. Folder not hidden. R-click Properties on Temp again, Hidden attribute not set. Have tested from other client machine, Vista 32, and demonstrated same problem. With drive connected to a PC, the Hidden attribute can be set for this folder successfully. Have rebooted and repeated on DGND3700 and it still fails to accept Hidden attribute for a folder." I know that seems complicated, but it is the only way to get them to take the case seriously. They'll probably even expect you to re-flash the modem and reset all the settings from a Factory Reset before taking the case seriously.
There are many issues and limitations with the NETGEAR firmware. I'm not sure they tested it at all thoroughly. NETGEAR got most of it open source.
The workaround it to safely remove the drive, plug it into a real host, set the hidden attribute, safely remove, and return it to DGND3700. It will respect the attribute if it's already there.
