You can change both the text and icon of your home screen shortcuts without needing to use BetterCut or other app, although BetterCut makes it a whole lot easier. With that said, this was just a curiosity thing for me. It's probably best to just use BetterCut.
You don't need root for this.
Tested on 2.0.1 only, but I'm guessing it would work on 2.1 as well.
Pull /data/data/com.android.launcher/databases/launcher.db from the phone.
Download and install: It's free.
SQLite2009 Pro Enterprise Manager
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Open the launcher.db with SQLite.
Expand Tables and click on 'favorites'.
Select the Table Data tab.
You'll see all of your folders and shortcuts on your home screen.
To change the text, edit the 'title' field.
Change the 0 in field 'itemType' to 1
Change the 0 in field 'iconType' to 1
You must add an icon to the icon field, even if you want to use the default app's icon. So either extract it from the app's apk, or use another .png to replace the icon.If you skip this step, the icon will display with the default system icon.
Exit out of SQLite.
Push launcher.db back to /data/data/com.android.launcher/databases/
As a side note, if you have tons of shortcuts/folders, you can pull down launcher.db from your phone, and then push it back after a phone wipe to restore your shortcuts.