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I think it will just access your library online then stream it to your decive. It will however download to your computers hardrive after you set it up under preferences.
As of yesterday (11-15-2010) you can! Sort of.....
The newly released Rhapsody 2.0 app lets "Rhapsody To Go" subscribers download songs in rhapsody playlists via 3G or wifi (not via the desktop rhapsody program with usb cable). So far you can only download playlists, but they say that individual tracks and albums coming soon. Of course you can work around this by creating a playlist thay happens to be a full single album, if that's what you want. Early reports are that the downloads are a little glitchy and slow. My first playlists downloaded worked great for short lists (around 10-20 songs) but got hung up with longer lists (100 or so). The download process is slow, though.
Note - you have to delete your current rhapsody app, or else both versions will be on your phone.