Ha-ha! OK, I got frustrated and did track down the fix. What did I find?
Well, on my system the default "Templates" location wasnt even
~Templates, it was just ~

To fix it:
------------------
sudo gedit /home/<username>/.config/user-dirs.dirs

then edit this line
XDG_TEMPLATES_DIR="$HOME"

to
XDG_TEMPLATES_DIR="$HOME/Templates"
------------------

Seriously lame...

-- 
"Create Document" Templates difficult to use
https://bugs.launchpad.net/bugs/372132
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