Hi Adam,
Yes, the LW player's crap
You should be able to set your original saved folder location (Downloaded Music, within My Documents) as the saving location in the new version. As a test, I made a folder in the same place, with subfolders for different genres & made that my new saving location...maybe you're missing a step somewhere?
Once you've created the folders that you want to use for saving....
In LW tools > options > saving > click 'Browse'. Browse for the folder that you want to save to. Once you've found the Downloaded Music folder, click 'Select'.
After you've clicked 'Select', click 'Apply'. Now a new dialog box will show, asking you if you want to share your new saved folder & it's subfolders.
Tick whatever folders you wnat to share & then click 'ok'. You'll go back to LW's saving options box. click Apply > ok.
Once you've done that, go back into LW's tools > options > saving. Check that your saved folder now shows as the new location.
As long as your folder location's been saved...the next file you download should go straight to the 'Downloaded Music' folder. Then you can move the file into one of the subfolders, depending on genre. The mp3 file is one I just downloaded.
Once you have all of that set up correctly, your new saved folder & it's subfolders will show up in your library, when you click on Shared Files.
Let me know if you're still having problems