Strange, I run squeeze also, notification daemon works fine here, I can
toggle it on and off at will (sometimes for me it can be a nuisance)
The file in question seems to be ~/.trinity/share/config/kdedrc
Here is mine:
[$Version]
update_info=kded.upd:kde3.0
[Module-homedirnotify]
autoload=true
[Module-knemod]
autoload=true
[Module-kwrited]
autoload=true
[Module-mediamanager]
autoload=true
[Module-medianotifier]
autoload=true
[Module-remotedirnotify]
autoload=true
[Module-systemdirnotify]
autoload=true
Are other files in .trinity getting updated normally? You can tell by
the date stamps using ls or konq in detailed list mode