Yes it appears LW 5 deletes the incomplete file when you Cancel it.
If you prefer it not to be deleted as such you can go to the Downloads window, right-click an incomplete file & choose
View File Info.... Then in the information window, click on the
Locate on Disk link & it will take you to the incomplete folder.
My incomplete folder is situated at C:/Documents & Settings/User Name/Incomplete
BTW it appears there is no 'Resume' function in LW 5.