All steam file for a game are download

Let's say I have a game bought on retail/other digital download and installed on my hard drive. I buy the same game (or a minor variant of it, say the GOTY edition) on Steam. It should be possible to use the existing installation to avoid the generally big downloads. This is very useful as it saves both bandwidth and time.

Previously, as far as I understood, Steam downloaded the game files directly to . Since this folder would be created on starting the download, pausing and closing steam, copying the game files to this folder and then validating game files would make Steam absorb as much as possible and just download the missing files.

Currently, Steam downloads the files to and then moves them over to the aforementioned folder once the download finishes. So first of all, what the final folder would be is not clear. So what would be the correct way of doing the same thing, that is, make steam use as much of the existing files as possible? Should the files be copied to , or should I figure out the actual folder (say via googling) and copy the files to ?

More specifically, I had a retail copy of Arkham City installed and I just bought the GOTY version on Steam. Now I tried both of the above things, in either case, the validating does not seem to do anything. Assuming I have the correct folder name , according to this, if I copy the files there, Steam seems to just continue with its 17GB download. If I copy it to then the download keeps stopping every few seconds with "Disk Write Error" after modifying 1 or 2 files, and I have to keep hitting resume.