Safari's Private Browsing feature (Apple: "Keep cookies, history and caches private when using Safari on a public access Mac") is handy if you want to ensure there's no trace left behind when accessing sensitive sites, such as online banking services. However, Safari will still download files to its usual download folder, as specified in its preferences. If you're downloading private data (such as banking statements), this could be a concern.
This AppleScript will automate the process of enabling Private Browsing, mounting a disk image (which should be created as an Encrypted image), and setting Safari's download location to the mounted image.
Copy and paste the script into Script Editor and take a look at the code. You'll need to modify the DownloadFolder, PrivateImage, and PrivateVolume values to match your setup. See this page for a guide to creating an encrypted disk image. Note in the example code that I've pointed to a .sparseimage file, which is a disk image able to grow in size. If you create a regular image, it'll have a .dmg extension.
With everything in place, you can save the script (I've called mine Set Private Browsing) into ~/Library -> Scripts -> Applications -> Safari, and have it always available from the Script Menu when Safari's active. Running the script will bring up a prompt from which you can Enable or Disable Private Browsing. Chooseing Enable will mount your encrypted image (you'll be prompted by Disk Utility for the password), enable Safari's Private Browsing feature, and tell Safari to use the encrypted disk to store downloads. Choosing Disable will un-mount the encrypted disk, set Safari back to using your regular download location, and turn off Private Browsing.
The script tries to keep things in a consistent state, so you won't have to tidy up after it in case something goes awry. For example, if the encrypted disk can't be mounted, the script will still enable Private Browsing, but won't mess with Safari's download folder. The code's fully commented, so you should be able to get a good idea of how it behaves.
[robg adds: I haven't tested this one.]
Mac OS X Hints
http://hints.macworld.com/article.php?story=20060801111216518