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Can VB do operations on files and paths like I have described?
Check the System.IO namespace, it has everything you need to work with files and directories. In your case, DirectoryInfo's GetDirectories() and GetFiles() methods. Aswell, the StreamReader class is usefully for reading simple text files.
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If so would it generate any sort of UAC alerts in Vista?
Probably, though I've never used Vista. I can't see it being a problem if the program is run with administrative rights.
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Are there any legal concerns developing this program (due to invasive nature)?
Maybe add a "use at own risk" license type thing? I doubt that's really a major legal concern though.
Oh and check out MSDN, it has everything you'll ever need to know about developing windows apps and the .Net framework.