Chrome Version       : 51.0.2704.79. Issue was first noticed on 49, but it can be reproduced on current Canary build.
Other browsers tested: Firefox and IE.
  Add OK or FAIL, along with the version, after other browsers where you
have tested this issue:
     Safari:N/A
    Firefox:OK 46.0.1
         IE:OK 9.0.8112.16421

What steps will reproduce the problem?
(1) Configure Windows folder redirection for "Desktop, My Documents, Downloads, and Favorites". https://technet.microsoft.com/en-us/library/cc732275.aspx 
(2) Configure Chrome's Default downloads location pointing to any of the redirected folders in a network share.
(3) Manually Disable Offline Files through the Windows Sync Center.

What is the expected result?
-Chrome should be able to save files to the configured downloads location.

What happens instead?
-You get error: "Failed - Download Error".

Please provide any additional information below. Attach a screenshot if
possible.

-The issue only happens when you disable Windows files offline. If you re-enabled it, downloads works as expected, even if the default downloads location points to a network share.
-Issue only happens on Windows 7. Tested on Windows 7 Professional SP1 x64 ,
-This configuration works fine on Windows 10.
-Tested with Windows Server 2012 R2. Our customer had a similar configuration with Windows Server 2008 R2, and it worked as expected.
-Issue on happens with certain type of files. He confirmed issues downloading PDF and xlsx files. This doesn't affect Zip files.
-Unable to reproduce the issue if Chrome is configured to prompt for a downloads location and manually saving to the redirected folder.
-If default downloads location is configured pointing to another network share location outside the redirected folders, everything works.
-Unable to reproduce the issue while signed in as a Windows Admin Account.
-This configuration works fine with other browsers.

Basic troubleshooting like clearing cache and cookies, disabling extensions, antivirus, and incognito mode did not change the behavior.

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This was initially reported at  crbug.com/383765  but it was closed before the behavior was defined, and the real root cause found. This is pointed in later comments from users.

It appears this only triggers on folders with localized names within the Desktop.ini file. This can be removed by running the command $(Get-Item "Downloads").Attributes = 'Directory' on each folder, but this also removes the folder icon.

Screenshots and related logs can be found at https://drive.google.com/a/google.com/folderview?id=0BzWUz38-X_A9bHNZTF9FcEJlODA&usp=sharing (Google.com Signed in required)

I will look forward to your comments on this issue.