Why is ~/Documents a symlink to itself, and how should this be fixed?
How is this possible?


It's easy to mess up when using ln on the command line. A symlink to self is legal (though nonsensical) so you wouldn't get an error when creating it.


  What can cause this configuration? Is there any legitimate reason it might be configured this way?


It's useless and should be removed. Once removed, they can create a new ~/Documents/ folder. If you're concerned about safety, keep in mind you can always drag things back from the trash.


  Is it safe to tell the user just to move all the contents somewhere safe, delete the folder, and then recreate it in the Finder?


If it's a symlink to self then it has no contents, because it's just a self-referential symlink. It's not a folder, it's just a recursive symlink. Finder is showing some folder that's named Documents but that doesn't mean it's showing ~/Documents/. You could create a folder with that name anywhere and add it to the Finder sidebar.

It would probably help to ask the user to cmd-click on the folder name at the top of the Finder window. That will show where it's located: