Sally... first, if you've made the changes correctly, it's very unlikely that they caused the page hijacking to replace you. I think you were very wise to make the changes, and I think the hijacking is a Google problem.
I should add, btw, that I've had a page that I wrote personally and that I know is original, which was on the first page last week as a nested #2 result, zapped by the update. The page now doesn't show up for many exactly quoted searches. Google IMO has not solved the problem of scraping... and there's been some major collateral damage in this update. I see these in other sites I've looked at as well. I hope to have time to post about this.
With regard to the canonical changes, to double-check that you interpreted various recommendations correctly....
In addition to changing the nav links, you also need to do a 301 redirect from index.html to "/". A less preferable alternative would be to use the rel="canonical" tag on your affected pages.
Re the 301, g1smd explains further along in the post that I quoted above why the redirect is necessary....
...The 301 redirect ensures that anyone that does try to access the other three URLs is redirected to the correct URL before the content is served to them.
Note that "anyone" here includes Googlebot. The concern here is that if you have inbound links going to different urls for the page, you need to redirect Googlebot to reach them, so all the link votes will combine and credit the chosen canonical version.
Also, I should add, the redirect of "index.html" to "/" is not a simple "redirect" command redirect, and it does require mod_rewrite.
Code examples are in this thread, which is also referenced in Hot Topics.... Merging www.example.com/ and www.example.com/index.htm http://www.webmasterworld.com/google/3037886.htm
Also, take a look at this thread for the discussion on why mod_rewrite is needed in this case. It might be helpful.... Split pagerank on index.htm http://www.webmasterworld.com/google/3417776.htm
You should have no problems if you've done the above correctly. You should be observing the url changes in your address bar and also be able to check them with a server header checker.
The use of the rel="canonical"
tag, IMO, is iffier, partially because you can't check Google's implementation, and partially because, if you had non-canonical links to your home page, they may possibly have affected the urls in links to other pages on your site... so you might need to add a correct canonical to every page. I feel there's much more chance of error, and the rel="canonical"
tag should be used only if you don't have adequate access to your server.
Here's Google's help page on Google Webmaster Central... About rel="canonical" http://www.google.com/support/webmasters/bin/answer.py?hl=en&answer=139394
The hijacked content, I believe, is a separate issue. Is this the page that you'd posted about earlier, btw, that wasn't coming up for its exactly quoted title? I'm seeing similar issues with this update, which is why I ask.