In v1.2, one enters the first part of the URL as the "server", and then the filename of the database you wish to download.
However, entering a URL of the form "http://www.somewhere.org/~username/" is combined with the filename "thedb.kdb" and resolved as "http://www.somewhere.org/thedb.kdb", forcing the db file to be hosted in the webserver's root directory.
Also, when the database URL fails it fails silently. Looks like if it is getting a 404 or 403 http error code (for example) it's calling the resulting error message the DB, which of course fails to decrypt. It does this with no explanation other than "it doesn't work", which I bet is the root cause of many of the forum complaints. The attempt to download the db should trap normal http error codes and throw an error message to the user, so they can correctly debug their webserver setup.
I suggest eliminating the two-part URL entry and just letting the user enter the whole URL in one line. There has to be a built-in URL entry and validity checker routine to call in the iPhone OS, which would get you all the functionality you need for free.