UPDATE!
I think I may have found a fix to my save game problem!
After posting the first screen shot, the upper, more empty folder disappeared and showed up in a different location. I found it hiding in Public documents. My first thought was to delete it and begin troubleshooting, but a thought occurred to me--what if this new folder was created at the start of episode two? Maybe episode two only reads from Public Documents? So I backed up everything in my original [user] Documents folder, copied and pasted it into the new Public documents folder. I fired up TWD and I was given the option to continue in episode two! It seemed like all of my choices were left intact! (saved Duck and Carly).
I feel a little more hopeful after trying this, so maybe I'll get to finish episode two afterall. But it begs the question, why the hell does game save and read from multiple locations? What possible benefit does that offer and why can't it be fixed to save and load from one location?
Red box shows the original [user] Documents/Telltale/WalkingDead which seems to have been the location for episode one saves.
The blue box shows the newer Public Documents/Telltale/WalkingDead folder which seems to have been created upon starting episode two.
My guess is that the prefs.prop and saves did not carry over to this new folder and after pasting everything in, seemed to have did the trick. I can't guarentee this will work for you, but remember, BACK EVERYTHING UP! And experiment, I guess