Imagecache receated a new Files folder at Root...ignoring files already in sites/default/files

Imagecache is acting weird all of a sudden by creating a new Files folder in the drupal root folder, and all files already in sites/default/files are being ignored.

Can someone help me on what happened?
Why did imagecache create a new folder and pointing everything to this new Files folder?

All images on the website are not showing anymore as the are in the old folder in sites/default/files

I would really appreciate you help!