The problem isn't the new Downloads folder. You don't need to resurrect the old one.
You need to remove the broken alias from the Sidebar, then replace it with one that points to your new downloads folder. Ctrl-click on the folder in the Sidebar and choose Remove. Then drag the new Downloads folder into the Sidebar.
You probably need to fix the permissions on the new Downloads folder, though.
Select it in the Finder window, and Get Info.
In the Sharing & Permissions section, click the padlock to unlock the pane.
There is probably a Staff entry with Read only. Select it and click the Remove ( – ) button.
For everyone, set it to no access.