It is amazing that nobody could answer this issue. It may be that at the time Keith posted his example, Splunk behaved differently.
However only after I found the source code from Splunk, I could guess is that your and the problem in the example Keith (http://informationonsecurity.blogspot.com/2013/05/splunk-bro-network-security-monitor-and.html ) comes from the source code of local apps.py (https://github.com/edo17/splunk/blob/master/etc/system/bin/localapps.py)
That code suggests that the folder name is in fact appName (lines 39 and 40), which indeed is not allowed to have any slashes or backslashes in the path (appName).
I solved the problem by removing the path and just giving the folder name that would be created under $SPLUNK_HOME/etc/apps (by default the name folder name would be the same as the name of the app.
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