I had gotten a little too aggressive about removing some directories in my project area when I was running out of disk space, and deleted this directory. Eclipse can leave some huge core files if it crashes in your workspace directories, (I had 35 gig of them) so it's worth taking a look there in your workspaces occasionally.
Anyway, as per the problem I tried the 'create a directory' approach. And it worked.
I was also seeing this error when I closed Eclipse by the way, not only after the 'periodic save'. So the exit/restart was also part of this.
Note that the last item on the directory path specified in the error message is a file -- not a directory, so don't get confused here. Probably worth checking that the directory permissions are created correctly as well (as the other projects in the workspace I think).
Obviously this is a bug in the Eclipse code base, (creating the full directory path under the file that is being created), but had I not deleted it in the first place, I would not have caused it in the first place.