Reports can be scheduled from ANY folder. However, if the report is placed inside of the Scheduled Reports folder, the report is not available for Users to run as a regular report (ability to run, refresh, etc.). This will allow an Administrator to prevent Users from running the long-running reports and to more simply focus on the instances.
If a user attempts to open and edit a report in the scheduled folder they will see the following error:
Your security profile does not allow you to refresh the document.
To modify a report saved in the Scheduled Folder:
Copy it to a Public or Private folder.
Right click the report name, Organize, Copy
Paste to a new folder
Open the new report by selecting "Modify" or double clicking the report
Modify the report
Save As the report with a new name
Cut or Copy the report back to the Scheduled Folder
Schedule the report
Delete the any old versions of the report