OK, running xdg-user-dirs didn't fix it for me at first, came back with
an error ('Can't write'). Turned out that somehow ~/.config was owned by
root. chown fixed that, then running xdg-user-dirs and log-out/log-in,
and everything works now.
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Desktop displays root directory (/) after upgrade from Gutsy to Hardy
https://bugs.launchpad.net/bugs/174532
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