I know for a fact (as in that I just downloaded the FGD from DDR) that the one they have works. If it doesn't work for halfhack, then reinstalling seems like an easy way to try and correct the problem.
Yes, you need to set FGDs up in hammer to use them. It doesn't matter where they are placed in explorer, however. I've had FGDs lying around in the C drive, on the desktop, and in My Docs and it worked ok.