And now it's fixed! Here's what I did (and what's changed):
1. Server rebuild over the weekend had big changes to permissions etc on all my main shares including Music
2. On all our workstations - instead of mapping network drives - I have always used the Win 7 "network locations" which can be added by right clicking in My Computer
3. Just now - I decided to ditch ALL these network locations (I had 3) and change them all to true "mapped" Network drives
4. I then removed the Explorer feature from MC.
5. Closed MC and Media Server
6. Restarted MC (with Media Server)
7. Re-added the Explorer component to the MC Tree
8. Closed MC (and Media Center) once more
9. Restarted MC
10. Icons restored!
So - seems that MC's Explorer component has an issue somehow with how it sees "network" location shortcuts vs mapped drives. Also of note - two of my specific "Network Locations" I had previously were not "top level" folders out on the LAN - they were several levels down in a folder called Bruce - and Windows did not display it's usual "mapped drive" icon in the My Computer window (the one with a drive looking like it's connected to a network pipe)...the icons were simply folders. I am wondering if this is somehow causing MC to display ALL of it's icons (even local drives) with this strange shortcut overlay icon.
I can confirm that all icons in the MC Explorer are now correct - as soon as moved everything the "hard" mapped drives.
One for the devs I suppose - but MC should honor Win 7's Network Locations feature as well as mapped drives - without changing every icon to a "shortcut".
Cheers!
VP