The URL I have configured in "Maps > Manage Repositories..." (for maps; I've also got a repository configured for satellite photos) is "http://mt.google.com/mt?n=404&v=w2.29&x=%d&y=%d&zoom=%d" -- it looks just like yours, except for using a real map version number. I don't know why yours isn't working. What's your "Cache Dir."? I wonder if you're trying to save maps someplace you don't have write permissions to (or someplace that's full). Worth changing the &v=w2.29 bit to see if that works.
Yeah, that dialogue box is a little confusing. You go to "Maps > Manage Maps", and then before you tap OK to download the maps you need to go to the "Zoom" and "Area" tabs to set up the area you want to download. "Area" will be pre-filled with the area that's currently displayed on the screen, and "Zoom" will be pre-filled with the current zoom you're viewing, but you can change them. Then tap OK and (assuming you have "Download Maps" and "By Area (see tab)" selected on the "Setup" tab) the area you've selected on the "Area" tab will be downloaded at the zoom levels you've selected on the "Zoom" tab.

This can sometimes take a very long time, if you're downloading a large area at a high zoom. (And of course you might run out of space, which probably would cause major problems for the whole OS if you were writing to the internal flash rather than an MMC card.)

Let me know if "&v=w2.29" makes a difference, and if not, where you're downloading the maps to.

Jay