Downloads automatically go into a subdirectory of your steam folder, there's no way to change that. If you're on Vista or 7 you can use an external app to move your already downloaded games to another partition and have them still work on steam. I think there's a way to do it on XP but it requires additional files to be installed first.
Steam Mover - traynier.com
SteamTool Library Manager 1.1 - Stefan Jones
I haven't tried either of these but I hear they still work just fine, no reason they shouldn't as it just uses a series of simple windows commands that would work for any files.
If you want to move the entire steam directory then:
1. Exit the Steam client application.
2. Browse to the Steam installation folder for the Steam installation you would like to move (C:\Program Files\Steam by default).
3. Delete all of the files and folders except the SteamApps folder and Steam.exe
4.Cut and paste the whole Steam folder to the new location, for example: D:\Games\Steam\
5. Launch Steam and log into your account.
You may have to verify files for your games after doing that too.