Dir2 does exist, but the name
Dir2 does not. Confused? :) The shell's current directory is still the directory referred by the name
Dir2, and this keeps the directory still around. This is analogous to anonymous files. Normally, when a files link count goes to zero, the file is deleted and the inode freed. However, if a process still has the file open, the kernel does not delete the file until the process closes the file, either explicitly or implicitly by exiting. In
Dir2's case, the shell is still having the directory "open" as long as it doesn't change its current directory.
What is gone are the names
Dir1 in the
Desktop catalog and the whole hierarchy of names below it, including the
.. entries. The directory formerly known as
Dir1 is also gone (assuming no other process has it as current directory). Files and directories at the inode level do not form a hierarchy, i.e. there are no links from inodes to parent, child or sibling entries. The hierarchy is built up separately by directory entries, which are essentially (name, inode) pairs, pointing to files and other directories.
After this lengthy introduction we can rephrase your original question so that it reads: "why does the shell not change its current directory to something else, when the directory entry
Dir2 is removed from
Dir1?" Well, one reason is that the shell doesn't even know this. Some other process has run the
rm program and removed the directories, but there is no mechanism by which the shell would be told about this. Second, which directory would the shell choose as its new current directory? The directory is changed using the
chdir system call, which takes a string containing the new directory as argument. The shell could try a
chdir(".."), but as we saw above, we already destroyed the
.. entry! Third, why should the shell change the current directory? It has no reason to do so, it is comfortable where it sits, and it is not in the habit of magically change directories without being explicitly told to do so.
Granted, the situation is kind of pathological, but it is up to the user to avoid it.