Not Vista.
But found solution
Went to Microsoft Fix It Solution Center
Selected the Windows icon
Ran the top option = Diagnose and repair Windows File and Folder Problems automatically
The downloaded EXE installed PowerShell 1.0, ran AND found the recycle bin was corrupted, THEN fixed it.
AFTER reboot the $RECYCLE.BIN folder was no longer system/hidden, BUT inside this folder was the normal Recycle Bin folder.
I moved the normal Recycle Bin folder to the root of each hard drive, then deleted the $RECYCLE.BIN folder.
Reboot to just in case and everything is back to normal.
Of course the question remains on HOW this problem happened.