I'm using Firefox 2.0.0.3 on this laptop, and it saves images fine.
I recently changed the location it saves them to - maybe I just got lucky.
What I did was Tools - Options - Main - Save Files to - C: \Downloads - (Always; no tick in the "ask" box).
What happens if you do that?
You can also "Browse" to the folder.
Could it be that it's looking to save the images in a directory that isn't there?