This happens with LimeWire 4 as well. My "My Documents" does not reside on my C: drive (it's sitting on E:\My Documents). However, LimeWire insists on creating it's folder in C:\Documents and Settings\[username]\My Documents\LimeWire

For some reason it's hardwired in LimeWire to use the physical path:
C:\Documents and Settings\[username]\My Documents

instead of
%UserProfile%\My Documents

This needs to be fixed.