Yes, you don't want to change Workshop -> Settings -> Library Location after you've already downloaded mods. Every downloaded mod is placed, and recognized, inside that location. Once it's changed, 7H goes "WTH, this isn't what I remember..." and then just copies the file names (ID_Category_Version.iro) recorded from the last known C:\Users\username\AppData\Roaming\7thWorkshop\library.xml.
So, for example...you start 7H for the first time and set your Library Location: C:\Games\FF7 --- Now when you download the Animations mod, it records the file name (ID_Category_Version.iro) to your library.xml and displays as "Animations" correctly in the Library tab of 7H. But, if you then change your Library Location: C:\FF7 --- The next time you open 7H, it's going to try and match the recorded library.xml information with what's found in C:\FF7 BUT freak out because that folder is empty (mods are still physically in C:\Games\FF7). When it can't read any file names in the folder, it just records the library.xml information (ID_Category_Version.iro) in the Library tab. Trying to launch the game at this point is trying to launch mods from an empty folder...they're displayed, but nothing is actually inside the Library Location: C:\FF7 that you changed.