OK Simple answer, the error message has it right. The files have not been migrated. The use of the moodledata folder is completely different than it used to be and it no longer holds course files - images, docs, pdfs and so on. There are now stored inside the database which offers considerably more security. This has necessitated entirely new tables, which has necessitated a whole new range of core code, file handling and so on. Once you make such a fundamental change to the way in which you store course files, everything else changes around it. Essentially, every course has its own postions within the course and cache tables, every page has its own fields and every file field has a relation to the appropriate course within the course and cache tables.
What this means is that "upgrades" do not work. Do not use a cvs tool to update your v1.9.x Moodle. This is not an "upgrade" like a v1.8.x to 1.9 it is a complete new product based on ideas within the older versions. Like any new product it needs be seriously road tested and the development team can only do so much. What you are seeing now is not a complete product, which is always an arguable strategy. At what point do you release your product, before all functionality is ready? Or at a core? If you wait, you can miss an opportunity for considerable improvement, if you release you could be giving people the impression the product is really buggy therefore questionable. IMHO the core is there, and for the basic usage of Moodle, it is stable and looks to being developed as an extremely versatile and powerful tool. Yes, I am unhappy that some things do not have their full functionality and that I cannot easily update, but I cannot dismiss the really good things I can ee in it. I know that the basic fuctionality will be improved in coming releases, and they cannot come fast enough.
I am not unhappy at not using it for a production site right now, though. The huge number fo changes that people are going to have to adapt to.. oh my... there is going to be a lot of resistance there and I am seriously unhappy at that. It gives me time to learn it and develop training strategies for all those people either new to Moodle or unwilling to change when they will have to.
Sorry about the length, but all this is just background to your question, so you can, hopefully, be patient and it will come. When it does, it is going to be such a tool you willwonder at how we got along without it!!