patch folder is in your uo directory, its a folder for storing downloads of patches untill they successfully are applied, sometimes the data becomes curropt and it cant use the downloaded data, but it cannot refresh it either, so it gives that error.
default it will be in c:\program files\ea games\ultima online ...... \patch
just delete the entire content of patch folder if any is there.
third posibility, if you are still not able.
run a scan disk on your drive where ultima is located. windows 7 got some data curroption issues under certain circumstances.
(right click drive, properties -> tools -> scan disk)