What happens to the mu-plugins folder when you upgrade to WordPress 3?

WordPress 3 uses the mu-plugins folder in exactly the same way as MU used to use it. Everything in there is automatically active sitewide.

Note that WP 3 has some newer methods for dealing with plugins though that you may want to consider switching to. For example, the Network Activation allows you to install a plugin via the normal means and then activate it sitewide and still use the WP upgrade system to keep it up to date. The mu-plugins method doesn’t allow that sort of thing.