I have same lsb_release and firefox policy. I attempted to duplicate the
problem on my system and everything appears to work correctly. Selecting
"Always ask ..." caused a popup to appear doing a download and saved the
file. Selecting a different "Save Files To" directory worked as
expected. Unable to duplicate problem.

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Hardy Heron 8.04 Firefox 3 cannot change download directory
https://bugs.launchpad.net/bugs/235658
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