I think this is related to the fact that I didn't have SP1 applied to my Workbench.
It actually doesn't remove the local files, but it uses the new SP1 folder structure, which is probably why all my applications were removed from my Application view.
So be aware that if you don't have SP1, your Application view will become empty and you will have to get the applications again from the server. If you had assets that were not checked-in, you can always get them from the old folder structure under C:\Documents and Settings\Administrator\Workbench ES2\localhost_NameOfApplication.
Jasmin
