Trouble installing Cyanogen on Galaxy S II using recovery console method
The folder you're seeing is the internal SD one. Just put your update.zip file there and search for it, it might be hidden in the scroll, just go down and it will show more files in the folder.

To make the process a lot more easy, just rename your *.zip to update.zip, but the file in the root of the internal SD card folder and use the Install update.zip from internal SD method.