I want to have the most recent file downloaded to be on top when I look in the Downloads folder in the finder. How do I arrange my download folder as "Recently downloaded"?
Wait until Lion's release and then you could sort by "date added"
Alas, there is no way to sort by date added to folder.
You can, however, sort the downloads in reverse order using "Date Modified" should get you what you want.
So, you need to attach a folder action to the downloads folder that changes the modification date when files are added. (MacHints thread linked.)
Another option is to use a utility like Hazel to keep the downloads folder organized to your liking.