I think the problem might be you have a hidden desktop.ini file in your Desktop folder.
If I'm right, then this file gets copied along with everything else into your backup folder, and when looking at the backup folder with Explorer, the desktop.ini file (its backup, that is) instructs Explorer to show the backup folder as "Desktop".
See if a desktop.ini file is present in your backup folder. If yes, delete it. Does this change Explorer's behavior?
If yes, you've found the problem. From there, all you need to do is modify the xcopy commandline arguments to exclude "desktop.ini" from being copied and you're all set.