I agree. This is kinda confusing mainly because of the confusing similar terms “Categories” and “Link Categories”.
Here’s what I did to change “Blogroll” title to “My Friends”:
In admin, click on “Links” menu then click on “Link Categories”. Then you will see on the right side of the page the various link categories you have set up. Assuming you are new to WordPress, you should only have the basic “Blogroll” link category at this point. Mouse over the word Blogroll and you will see two options for editing. Click either one of them, then change the name “Blogroll” to whatever you want, e.g. “My Friends”. Then click on “Update Category”, and you are done.
So, there is no need for any editing of the code pages. Simple. I love WordPress!