It has not been fixed in the update. I just got bitten by this as well. I had this setting turned off already, but it did not obey the store settings. I wrote Apple an email on their iTunes support page, but that probably won't fix anything. I just deleted the app and will keep using iTunes until I know this app will be up to Apple quality.
The problem I have with Downcast and other 3rd party Podcast apps is that they do not save the downloaded media in the same location as iTunes does along with music and other media, which means it's inaccessible by my Pioneer car stereo. I was excited to hear about Apple's Podcast app since it would let me subscribe to a podcast and still have it available to listen in my car (the only place I listen to Podcasts).
Is there any 3rd party podcast app that will put the media in the same place as where iTunes puts it?
I do not believe there are any 3rd party applications which do that no, unfortuantely. The best we can do really is make as big of a stink as we can.
1) Send feedback to Apple. Posting is here is a great way to get support but not monitored by Apple
2) Submit a well written review of the application to the App Store and rate appropriately