@roaminggamer, according to his screen shot above, his project is in a folder off of his desk top. He does not appear to be putting this in his Corona Application folder.
@SonicX278, there is a difference in what you are calling your “Corona folder” (the folder where your game files are) and where the Simulator lives. @roaminggamer was advising you (wisely) to not put your code in the same place that the simulator lives. You are not doing that so all is good here.
We have thousands of developers building apps on Windows every day and 99.9% of them call display.newImage() or display.newImageRect(). This is pretty solid code or we would be getting many reports of this. You are describing removing an image and still seeing it there. Corona SDK doesn’t control the contents of your folder. What this sounds like is a corrupt folder on your computer. You may need to run chkdsk or some other disk utility to make sure your hard drive is healthy.
I don’t regularly use Windows so I can’t provide you the step-by-steps you need to do this. There is plenty of help on the Internet to help with this.
Rob