What happens if I delete the default folders in my home folder?

Solution 1:

Those folders are "well known" user folders defined by Freedesktop (check here: http://freedesktop.org/wiki/Software/xdg-user-dirs).

In Ubuntu 10.04 you can edit the file ~/.config/user-dirs.dirs to change the location of those folders. When you've change the file you need to restart nautilus (run 'nautilus -q' in a terminal or log out an in again).

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Solution 2:

I always delete all except Desktop and Templates without any obvious problems.

If you delete Templates (and don't assign a new user-dir for it), the right-click-Create-Document feature in Nautilus becomes less useful. If you delete Desktop and don't assign it, your home directory becomes the Desktop folder. Which can be a bit cluttered, especially if you have dotfiles shown.