You should put libraries in the libraries sub-directory of your Arduino sketchbook folder (e.g. ~/Documents/Arduino on Mac or My Documents/Arduino on Windows). You'll need to create the libraries/ directory. This way, libraries can stick around when you upgrade the version of Arduino. I'll try to update the documentation soon.
This works as stated...
However what initially confused me is there is an existing directory which is not correct...
Opening the Arduino package also works, but as stated, that makes updates difficult and very unMac like.
Other than that initial confusion I really like the new environment!!!