[dba-SQLServer] Change default backup destination and reduction of log file size

I recently installed the web server version of SQL 2008 R2, and as
part of installation I must have specified the default backup
destination folder.
I've restored three SQL 2005 DBs and all is good.
I moved the backup destination folder though in the file / folder system.
Now whenever I do a simple full backup the Management Studio is
serving up the location of the old now non existing backup folder.
Simple question: How and where do I change the default backup
destination setting?

Also, One Db has a mdf file of 750mb and the logfile is about 500mb.
How do I reduce the size of the logfile? I thought that performing a
simple full backup would automatically reduce the logfile.

Thanks,
borge