There is no 'virtualized folder' alternative to Temporary Internet Files, nor is VirtualPC preinstalled/bundled with Vista. Such only exists if manually set up by a user of the computer. The Temporary Internet Files folder, on the other hand, is located at C:\Users\your username here\AppData\Local\Microsoft\Windows\Temporary Internet Files.
As to file downloads, during the download process it may be saved in a temporary folder, but once it completes it should automatically be copied to the user-specified directory under the user-specified file name.
Why is there a Virtualized folder and why is there no Temporary Internet Files in Vista Home Edition? Each time I try to locate the files I cannot find them, sometimes when I open a new tab in IE and save a application it copies from a folder named by scrambled characters but I try locating that and I cannot find where it is and I know there are a lot of scrambled character folder names somewhere and I suspect it has something to do with the new Vista VirtualPC Virtualized folder setup. What can I do to make this Virtualized thingy go away forever?