I am happily running Dolphin on gnome without any problems except for this:

Could not save properties. You do not have sufficient access to write to
/home/serge/bubba/serge/radios/.directory

You need to know that this is a properly mounted directory tree via sshfs with options idmap=user, uid= and gid=. I also tried adding option workaround=rename without any effect. sshfs authentication occurs automatically via an open ssh key.

.directory was not existing. Interestingly, I created manually an empty .directory file with Dolphin without any problem. This shows I do have all permissions. Nonetheless, Dolphin can still not change the file.

The only thing I can think of is that Dolphin is using some kind of different username that I need to add to the fuse group. However I do not know Dolphin/KDE sufficiently to know what username that might be? Or is it still something different that I am overlooking?

Dolphin runs as your user I believe. It could be possible that too many simultaneous file accesses cause this error however.

I don't really think that too many simultaneous file accesses would be the issue, as I can access all my files without any problem. It only happens when I want to change the icon of a directory.

Other than that, you may wish to check dmesg or ~/.xsession-errors to see if any other related error messages have been output.

In the mean time, I have filed a bug report:
https://bugs.kde.org/show_bug.cgi?id=268290
Anyhow, I am still hoping to hear from a solution here in this forum...

I have found a nonetheless still cumbersome workaround:
I have created a dummy folder on the local HD of my client machine. With dolphin I change the icon of this folder and than copy the .directory file of that folder to replace the .directory file of a sshfs folder on the server. This demonstrates again that we really have to do with a bug in dolphin.

The bug probably doesn't exist in Dolphin given that it works with local filesystems fine. If you use sftp:// does it function correctly?

If you use sftp:// does it function correctly?
No, that is even worse: Dolphin does not show any customised folder icon when using sftp.

FYI, I have also been able to reproduce the problem under OpenSUSE 11.4 running KDE and sshfs.