I found a way to get the gallery to work without having to do a factory restore, I pulled the steps from a motorola xoom, and it worked for me. I did remove all of my mp3s before doing it though:
- Goto Settings->Apps
- Select ALL apps tab
- Scroll down "Media Storage" application
- Select It
- Stop the Service
- Select Clear Data
- Make sure Xoom is not connected to your PC
- Do full shutdown of your Xoom, then power it back up.
- Wait 5-10 minutes as content is reindex. As its being reindex it is normal that you won't see anything in your Music player, gallery, or even when connected to your PC.
- Check your Gallery or Music application to see if content has start to reappear. Don't panic if it hasn't yet. Give it another 5-10 minutes. If it hasn't appeared then try powering off and rebooting Xoom a second time.
- If content doesn't start showing up after second reboot, Download and run the ScanMedia application from the Android market: https://market.android.com/details?id=com.dcd.scanmedia
- Start the reindexing process from the application.
- Once reindexing is done your content should be visible in Gallery, Music Player, and you should be able to browse SDCard and internal storage from PC again without directory duplication/errors