Is there a way to hide images from the media library?
Yes, in version 2.x of the media module the media browser is implemented as a view. This is the key to doing any sort of customisation to the browser. You should be able to see it in admin/structure/views and override it as you would with any other view.

The media browser view uses files as it's base type. It has some existing filters for filename, type etc. You can add another one that filters by path. If you use the starts with operator and value public://foo/. That will end up doing a SQL LIKE query on the uri column of the file_managed table, which should give you what you want.

It's worth noting that you can customise the media browser only for certain file fields. To do that, clone the view instead of overriding it, thereby giving you two media browsers. Then for each field that uses a media widget, you need to choose which browser(s) you want.