When I change the FTP account for a project, the Upload/Download functionality stops working.

FTP credentials are verified to be correct and FTP works fine in Filezilla.

This ONLY happens if I change the FTP account for a project (which I do frequently as I stage on my dedicated server and then upload to client's server and sometimes need to change the FTP account for the PROJECT)

I get "Failed to connect to server Read timed out."

I've just tried changing FTP accounts on a project and worked fine, so doesn't seem to be a general issue.

What version of PhpED? Is it still a problem if you exit PhpED and restart it?

I recommend you report to NuSphere support http://www.nusphere.com/contact_us/