To reproduce: Middle click drag a folder to your desktop from nautilus, then
click link.  Or just make a symlink on you desktop using ln -s (appears to be
what nautilus is doing).  Double click this new link icon on your desktop.  Now
click on the path button on the bottom of the nautilus window and you will see
home, your username as the up-hierarchy.  That is not useful.  When people drag
links to their desktops, they are trying to create what is essentially a windows
type shortcut which when clicked will take them directly to the folder and
represent the correct hierarchy.

I can see that this is actually a hard problem because in many other cases you
would want nautilus to preserve the linked path.  Even bash sometimes randomly
updates the path to the new path or holds the linked path if you do a pwd or cd
..  The ambiguity in ln is not really the problem however since it seems like
what should happen is that instead of "link", middle click should have an option
like "create shortcut" that creates a launcher with the correct icon that just
launches nautilus with the target path as an argument.  However that is kind of
lame since then you get the situation in windows where those links are not
transparent in windows to the filesystem so kde would really hate gnome if you
used launchers instead of links.

Anyway, it seems like a semi copy of windows functionaly applied in a way that
doesn't really make sense but could very easily.  What people expect is the
windows type behavior and really that is what is most useful in the specific
case of dragging links to your desktop.  The link fx is really cool also.  Maybe
instead of deleting one in favor of the other, there should be two options.