To make directory paths visible atop Finder windows, open Terminal.app (/Applications/Utilities/) and type the following command:
defaults write com.apple.finder _FXShowPosixPathInTitle -bool YES
Once you run the above command, you will also need to restart the Finder, so you can either type "killall Finder" and hit return, or use the Force Quit option under the Apple menu to relaunch it. The Finder will restart, and you will start seeing the paths to directories in the title bar.
Update: As some have pointed out in the comments below, this Terminal command will only work with Mac OS X Leopard (version 10.5).