All libraries are are pointers to actual folders.
In W7, My Documents is listed under libraries with Music and Pictures, etc but My documents also has pointers to My Music, My Pictures, etc. I find this redundant so I have removed them from under My Documents. And My Downloads does NOT have a library by default but is instead listed under Favorites. Well I do not like the Favorites section in Windows Explorer and have deleted it so I created a Library entry for Downloads and pointed that to my
My Downloads folder.
In XP I didn't really use their folder naming conventions such as My Documents, My Music, My Pictures, and My Videos. By default W7 sets up library pointers to these folders so I have sorted my data into these folders now and it works quite well for me but you can add additional folders to the libraries as you wish (and delete too). When you moved your data to D: did you actually MOVE the My Pictures, My Music folder to D: from C: (which changes the pointer in the registry) or did you simply start using a new folder on D: ? In W7 would recommend actually making My Documents, My Videos, etc point to your D: drive as then the files take on that data type which controls how they are displayed in Windows Explorer and it also puts them under the protection of proper classification for UAC and for back-ups etc so you really do want the registry to know My Documents is on D:, not just not use My Documents and over on D: you have some folder (mine was actually called DATA

).
So even in XP you could MOVE those folders (even to another drive) and call them anything you wanted (by moving the folder the registry was changed to point to the new location) but if you were like me you simply stopped using My Documents and simply used D:\Data. In W7 I have corrected this and I would advise others to do the same. In XP you could set Windows Explorer up so each folder displayed how you wanted or you could apply it to all folders; in W7 there are different layouts depending on whether it is a document, music, video, picture, or general. You can assign any folder to any of these types but if you put it under the right My documents, My Music etc then it is set up as this type automatically.
Basically Libraries is extremely customizable and I find I rarely use other folders with the exception of when I am tweaking my start up menus or messing in the program files folders or if I plug in a flash drive (I disabled autostart so I view folders on the flash drive via Windows Explorer).