Also, you can't use a folder that's flagged as Read Only as the download folder for LimeWire. So after you create that Downloaded Music folder, you may want to right-click its icon and make sure the Read Only option isn't selected, so you can then point to it from within LimeWire.

Really, try to stay away from using My Music as the name of your folder. You're going to complicate things because there's already a built-in folder named My Music.