Update!
I have managed to sort this out - I still don't know what happened but my user folder suddenly had 'no access' privileges assigned to it.
When I clicked on the main 'house' user icon in the finder window the error message would come up, but when I navigated through the user folder with the 'Mac HD' it would at least let me select the user folder. I did a 'get info', which revealed the 'no access' setting. When I changed this to 'Read and Write' the problem seemed to be solved, although the desktop was still missing.
On a restart however everything was back on the desktop!
A big relief as I'm sure you can understand.