Comment #1 on issue 4922 by jonathan.wong: Unwanted "Downloads" folder is  
created automatically.
http://code.google.com/p/chromium/issues/detail?id=4922

Try deleting the folder to get rid of it...
I may be wrong, but the Downloads folder I believe is created because it  
was an
optional "default" location to download all your files.  Files cannot be  
saved to a
folder that does not exist....

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