Nav links hacked

Someone’s hacked my site to add strings to the “Previous Page” and “Next Page” links at the foot of each page. For example:

http://www.futilitycloset.com/page/18/?appserv_root=http%3A%2F%2Flnx.ilchirone.it%2Fpublic%2F%2Fmodules%2Fcoppermine%2Fthemes%2Fdefault%2F1.txt%3F

Can someone tell me how WordPress builds these links? I don’t know whether to look in my theme files or in the database. The theme source says:

<div id=”postnav”><?php posts_nav_link(‘ — ‘, __(‘« Previous Page’), __(‘Next Page »’)); ?></div>

Many thanks.