We've tried it up and we've tried it down. We definitely prefer down. One of the best decisions we made when buying/building our new house was choosing to put the playroom on the first floor. Princess likes to be near us and this gives her the opportunity to play whenever she wants, without being completely by herself.
This room is just off the great room/living room and was actually meant to be a dining room. We have an eating nook in our kitchen, so a dining room seemed a little redundant. The space makes a perfect playroom for Princess and her adventures. Of course, if she wants some private time, she can always go upstairs and play in the bonus room or her bedroom. It's good to have options!