I selected ALL within the Unprocessed Flac Files folder that contained nothing but subfolders full of files I wanted to convert. The Files in the Woven Wheat Whispers folder were completely separate. Had I selected ALL one level up, that would explain it, but I didn't.

The All node lists all files in the selected folders All node as well as all files in all sub-folders of the selected folders All node.

The latest version. It's very odd. As far as I can see, it only touched files that were in the very next folder, alphabetically.
I selected my folder - Unprocessed Flac Files - in My Computer, as you assumed & clicked ALL to load all the files I needed to convert. There were a lot, so I went away & left it. When I checked it seemed to be stuck, although it may have just been that the file it was trying to convert was a very large one. It was one of only four tracks on an album. All the affected files I found were in my folder - Woven Wheat Whispers - which was the name of the now defunct legal download website I bought them all from. I can see no way I could have added these files to the list by accident. Next time I do a batch, I'll check carefully & see if it is, indeed, adding files it shouldn't. It's very odd.

I never had MediaMonkey convert files not selected to be converted. I presume the selection is done in the My Computer in MediaMonkey? Which version of MediaMonkey are you running?

I noticed something worrying recently. I wanted to convert a huge number of tracks from flac to VBR0 mp3. I had them in a folder on my main music drive which was intentionally not included in my library. I opened this folder & selected all - to select everything in dozens of flac album folders. I selected Convert Format & set it running.
I found, when checking that it had stalled on converting a track that it shouldn't have been attempting to convert in the first place. On checking, I found it had reconverted mp3 files in a totally separate folder, which was in my library, to mp3. Luckily, I think it only affected files in that particular subfolder, which were all bought from a specific website, which no longer exists (it closed down due to constant hacking attacks). All these files were dated 2008-2009, so all I needed to do there was replace all the ones that now showed a 2016 date from my backup drive. It turned out that the same thing had happened a few weeks earlier, as some files were dated September this year. I have no idea why this is happening, but I can never be certain that mp3 files in one of the other folders weren't re-encoded too, which is obviously not good.