I haven't used that program, but I can give you a few things to double check permission wise...
1) Check the permissions under [VFS] to make sure you allow setting timestamps at all... The default is:
Code:
TimeStamp = /* !*
TimeStampOwn = /* !*
Which obviously doesn't let anybody change anything.
2) There is also an exception to the above which allows you to modify the timestamp of the last file you just uploaded even if prohibited by the above rule. This makes it easy to sync new things but not existing stuff. That option is Enable_TimeStamp_On_Last_Upload under [Ftp] which also defaults to false so by default the server rejects all MDTM set commands.
3) If things still don't work you could try to hide the fact that the server supports the MDTM command at all via the Feature_Suppression feature and/or changing the permissions on the command itself...
I don't think you can use MDTM to modify the timestamp of a directory itself (just the files in it) which may be an issue for you, but it sounds like the files aren't even correct at the moment...
Another program I've played with in the past that you might want to check out is SuperFlexibleFileSyncronizer which was pretty slick for syncing files/folders. It has a ton of options, as it's name suggests, so it's a bit complicated the first time you use it to get everything the way you want. It supports syncing over FTP connections.