I am able to setup a link with another laptop (Win 7) and even able to send files (surprisingly around 3-4 MBps). But I am not able to locate where exactly the files are getting stored in my Ubuntu 12.04. Is there anyway where I can setup the default folders for it.
Yes search for "Personal File Sharing Preferences" in Applications from the Dash.
You'll get a menu of options and you can change Downloads as the primary folder to which files are bluetoothed to.