I found a copy of my Downloads folder on my Desktop and moved it to my home folder where it should be. I got a warning message saying that the two directories would be merged and ok'ed it.

Unfortunately, it was a link to the downloads directory (dunno why/when it was created?), and the dialogue box had warned near the bottom that all my files would be deleted.  Yes, I was in a rush - it is my fault :(  So I have restored my Downloads from backup and chalked it up to experience.

However, someone who is new to Nautilus, or less diligent with backups, may suffer significant data loss - and move back to another OS, which helps nobody :(  And no, this is not really a problem with the software as the program doesn't crash. It's just really an observation that the dialogue box is too close to the merge one, especially when the files aren't sent to the Deleted items folder - they're really appear to be unlinked.

Would be nicer if:
i   the warning that your about to loose data looks
    significantly different from the merge one; or,
ii  the files are really moved to the Deleted files folder; or,
iii the link is removed in this special case, rather than the data; or,
iv  that Nautilus simply doesn't allow you to do this - mv doesn't!

If you really want to scrub files from the system and set up a symbolic link to itself, you really ought to know what you're doing and be doing it manually. HTH!