I can confirm that this bug still exists in Jaunty.  I deleted my
Desktop folder, as I wanted my Desktop to be on a different partition
using a symlink, and my home folder became my Desktop.  I also tried
fixing with gconf, which didn't work.  Correcting the line in
~/.config/users.dirs.dirs did fix my problem.

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Gnome Thinks Home Directory Is Desktop
https://bugs.launchpad.net/bugs/151576
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