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To make this work in Thunderbird 10 you'll need to change:
install.rdf
to...
<em:maxVersion>10.*</em:maxVersion>
and change
chrome/content/markAllReadSubfolders.js (line 132)
to...
var appVer3Orlater = version.substring(0,3) == "10.";

The only difference with this to the previous hack suggested by George is that the version.substring must also be changed - subtle, but important...