I had the same problem with the folder. You have to create the screenshots folder before it will work (which I think you have now done). But then exit the game and restart, and I think it should start saving them after that. (Can't remember for sure, but I definitely had the same trouble).
BTW, in my config file it is in capitals - SCREENSHOTS, so I created the folder using capitals as well, don't know if that will matter, but it is worth trying.