Downing has scored one goal – against Oldham – in 24 appearances for the Anfield outfit following his £20m arrival from Aston Villa in the summer.
However, the Scot insists that he hasn't made it easy for Downing by playing him out of position.
"Stewart is a fantastic footballer, an England international, who made a big move in the summer to come here," Dalglish told reporters. "For me, he's better than I thought he was going to be.
"I don't think it's been too comfortable for him because we've played him in two or three different positions. Maybe we have to look at ourselves and say we have to be fair as well.
"But he's better than I thought he was. He's a better footballer – he's also quicker than I thought."
Downing will look to get his season on track when the team travel to Bolton this weekend.