My download folder is in the site root (public_html) and to get it working I had to change the setting to ../downloads/ (note the extra dot).
Also, for some strange reason all my files lost their approval status so I had to go through them all again.
Can't say it was a smooth upgrade from 2.0f as there was a lot of tweaking had to be done but its working now and I'm a happy bunny - Thanks Ron1n for this incredibly useful hack