It's a Java 7 bug. There's no fix for it to my knowledge.
Only two alternatives I can think of. 1. Find the limewire.props file in the preferences folder and manually change the location of your downloads (this works, I tried it a few months ago.)
or 2. downgrade to java 6, removing java 7.

Edit: took me ages to find it, but I answered a similar question here http://www.gnutellaforums.com/genera...tml#post371929. Same thing happens with all LW 5 versions running under Java 7, not only LPE.

The inability of changing download directory (causes freezes when you attempt to) and the 64-bit java updates are two bugs that we must contend with if we use Java 7.

(The 64-bit java updates result in LW opening with an error window and changing location of its settings and download folders to top level of user directory and inability to connect. Reinstalling the 32-bit java makes it all go back to normal. Only applicable if you are using 64-bit Windows + computer.)