In an effort to remove a small amount of complexity from the UI, we have the command to convert a branch back to a folder appear only under the main menu and not in the right click menu. The way to convert a branch back to a regular folder is to do the following.
Why would you want to do this? The reason would be just to remove the branch from branch visualizations if you’ve decided you never want to see it again. This does not change the branching relationship, so you can still merge to and from the branch as before (it just affects the visualization and the properties you see in Source Control Explorer).
You can also do this if you need to remove a deleted branch from showing up in branch visualization. If you find that a deleted branch is still showing up, you can turn on the option to see deleted items in Source Control Explorer and follow the instructions above.
The full MSDN doc page on this is at http://msdn.microsoft.com/en-us/library/ms181425.aspx.