Upon re-reading your post, if you hadn't set your LW downld folder to the iTunes library, then you must have set it to somewhere outside of your user account. My main partition is called OSX & my user account is OSX>Users>Lotr but I don't save my files onto this partition. I save them onto a different partition. Just make sure you have write permissions to the folder you're saving to.
And make sure you have permissions to write to every enclosing folder above that folder.
Make sure you
Repair Permissions after installing any softw.