Short version: I had thought the ubuntu 9.04 install was behind this but was
mistaken.  It appears that though I did a fresh install, I was doing it on a
machine with a separate /home partition.  When I did the install, it saw
some configuration that had been done when the machine had eeebuntu on it
and that was where using $HOME as the desktop folder originated.  The ubuntu
9.04 install simply recognized it and kept it.

Long version:  This is valid for ubuntu 9.04 and others and includes a bit
of informed guesswork.  The specifics may differ some in other versions and
distros.

/etc/X11/Xsession.d/60xdg-user-dirs-update during startup checks if
/usr/bin/xdg-user-dirs-update exists and if it does, executes it.  Since it
is a binary executable this is a bit of guesswork, but I believe it checks
to see if $HOME/.config/user-dirs.dirs exists.  If it does not, it uses
/etc/xdg/user-dirs.defaults to create one and to create the directories
described using the current locale language. If $HOME/.config/user-dirs.dirs
DOES exist it does not do so although I suspect it still checks and adapts
to any changes the user has made since the last startup.

I am pretty sure one should be able to return to normal usage by editing
$HOME/.config/user-dirs.dirs to add the usual sub-directories (Desktop,
Documents, etc) and just do a restart.  It may be that you should recreate
the actual sub-directories first but my reading seems to indicate
/usr/bin/xdg-user-dirs-update will do it for you during the restart.  I have
not verified this.

-- 
Dazed_75 a.k.a. Larry