Try resetting all of the preferences relating to the download directory.

1. Type about:config into the location bar and press enter
2. Accept the warning message that appears, you will be taken to a list of preferences
3. In the filter box type browser.download to bring up a small number of preferences
4. For any preference that has a value set to a folder, right-click on it and choose Reset
5. Now set the download folder in the Options dialog again

If it still creates the folder, try clearing the list of downloaded files in the download manager. In the Tools menu select Downloads, then click on the Clear List button.

I'm afraid that didn't do it. The downloads folder keeps getting created, I even uninstalled the download manager completely, rebooted and tried again and this thing still happens :'(

I have been doing some checking and the folder is created automatically and there is no way to disable it.

There is a bug report concerning this behavior - Bug 474718 – Empty "Downloads" folder should not be created when opening main page of options dialog

(please do not comment on bug reports)

well atleast i know im not the only one going nuts lol.

thx for the info, will wait for patch/update :)

Yeah, it's driving me nuts too. Anything that "invades" the My Documents folder is takin' a little too much liberty with disk real estate. "My" means me, myself and I.