This problem seems to occur when the 64-bit Java 7 was installed or updated last. If you re-install the 32-bit Javas all should be fine after that. Java will say it's already installed but just click ignore or continue with the java installer. You will connect very quickly when you have fixed the java situation.

The reason LW would not connect is it created a new preferences folder called .limewire at the top of your account directory (instead of using the appdata folder) (and its built-in connection file will have been self-deleted). And created a new set of LW download folders also at the same level.

As far as changing the download location from the default, unfortunately this is a bug when running under Java 7. But at least when you reinstall the 32-bit java all will go back to normal and the download folders will be the correct location.