Easily fixed (I think someone else here linked to the wiki page for the solution),but it is a good example of one of the problems (IMHO) with Emacs. It comes with shitty defaults. There's something of a chicken and egg problem with getting started with Emacs. Emacs can rock very powerfully when properly configured. But out of the box it sucks rocks. It's pretty hard for a beginner to learn enough about Emacs to configure it to be worth a darn before giving up in frustration. :-)

I'm a pretty new user to emacs, and this is something that has bugged me for a while. It's one of those things I can't imagine why it would ever be a default, but something I have to live with until my abilities to configure are up to par.

You should check out the emacs starter kit if you haven't already: http://github.com/technomancy/emacs-starter-kit

It is easy to criticize something without providing an alternative.

Well now what I do is store the backups in a folder in my home directory.

Put -B in your $LS_OPTIONS.