restricting downloads on limited account in windows xp pro

Windows XP does not contain any native tool for blocking downloads unless you use it as a member in a domain controller.
While if its a stand alone system try some tools like folder guard, here you need to block the access for temporary internet files folder of that particular profile so that when that guy logs in and try to download files using IE it shall say access denied, in the same way you need to add the paths for mozilla, opera and netscape if used in folder guard paths

Even if your computer is a standalone computer, you can set up a Group Policy. Go to the command prompt and type in gpedit.msc.

Go to Computer Configuration - Administrative Templates - Windows Components - Internet Control Panel - Security Page - Internet Zone. You need to configure the entry 'Allow file downloads' and set it to 0.