Sara,
In my experience, when I start a new mxd and load the rawdem, agreestream and other layers and then save and start the Arc Hydro processes (DEM Reconditioning, etc.), the target locations are automatically set correctly and things go smoothly. (I believe you must save first before Arc Hydro will work correctly, otherwise I don't think Arc Hydro will know where to put the target locations.) If I do that, I find no need to mess with the target locations. It is only when I'm saving the mxd under a different name and/or directory that the target locations need to be reset. There have been times when I've reset them just to make sure they are correct.
Mark