If you look at the following screenshot:

Notice how there are C drive contents like the WINDOWS dir, Prog. Files dir. etc.

Same goes here in the Docs dir. (C Drive appears identical to the following image):

Please excuse for the incorrect labeling I did in MSPaint  ("Desktop" was supposed to read "C Drive" instead).

Can there be a way I can hide them completely like it was back in the stock XP install? (I tried the trick that hid the XP Sidebar on the Desktop but did nothing)?

If I get this right, you have a misconfigured "My Documents" target/redirection. or key in the Registry:

http://www.techrepublic.com/article/tech-tip-redirect-my-documents-to-an-alternate-location-in-windows-xp/

https://support.microsoft.com/en-us/kb/221837

http://windowsxp.mvps.org/redirectfolders.htm

jaclaz