I think the OP is just confused on what the svn folder and that setting do.
An svn folder accidentally slipped into Grid when updating. Normally, these get deleted when the file is uploaded from the author's computer to the wowace repository. What the "skip svn working copies" setting in WAU does, is prevent an author's working copy (one that they - or a user - may have made changes to) from being overwritten by the file on the wowace repository.
Just delete the svn folder in your Grid folder and you'll be able to update normally.