Magento connect does not have sufficient write permissions you might receive this error after you installed a fresh magento install or migrated your site to a new host.
It can easily be solved.
Perform an ssh connection to your server.
Go to Magento home directory
Perform the following
chmod 777 -R downloader/ downloader/*
if you using Cpanel on your server set the following permissions:
chmod 755 -R downloader/ downloader/*
Now reopen your magento connect and verify that the error msg has dissapeared.
Now all should be well and you can now set your magento connect prefrences.