1) It's possible that the disk directory got corrupted, causing the problem you
are seeing. Rebuild your Desktop by holding down the Command and Option keys
while inserting the diskette. Run Disk First Aid to repair any directory
damage.
2) Someone may have made the folders invisible. Use a utility such as
ResEdit or Symantec Utilities to check this.
3) If running System 7.0 or 7.0.1, make sure to obtain System 7 Tune-Up version
1.1.1 or greater. Running Tune-Up 1.1.1 or greater will prevent a problem from
occurring where folders and files begin to disappear from the desktop, but are
in fact still intact and available.