Thanks Andre for the clarification. Yes, even though folder can be renamed when VM is powered on but it will lead to issues if we want to migrate the VM to other datastore or if we shutdown & try to power on. Hence please do not rename folder when VM is running.
Second approach will work just fine. i.e. renaming display name of the VM and then SVMotion to another datastore & then again you can bring back the VM to earlier datastore.
Refer:VMware KB: Renaming a virtual machine and its files in VMware ESXi and ESX