I found the problem. I had just posted a short howto of sorts on something I just worked on today:
I created a nautilus action
for finding files within nautilus.
Menu > Preferences > Nautilus Actions Configuration > Add
Parameters: --hidden --allmounts --contains= --path=%M
Now I can go to nautilus, right click on any directory, select "Find" and locate a file based on name and / or content in that directory.
Worked great all day untill I had to reboot. Then all heck broke out and my desktop icons were gone. Couldn't right click the desktop - couldn't launch nautilus. It was the only thing I did to the system today so I deleted the action and my desktop icons were restored.
So let me rephrase the question: Why does nautilus action cause my desktop icons to disappear?