That came more than six months after he fractured his foot against Villa while playing for Middlesbrough, and O'Neill was encouraged as his £12million summer signing had only 20 minutes as a substitute under his belt before the trip to Pompey.
"It was really fantastic," O'Neill said. "He is not really properly fit yet. That was 20 minutes against Burnley, nothing against Tottenham on Saturday night, but I was always going to start him in this match.
"I was really pleased with him. What pleased me most was his ability on the ball. He can manoeuvre it, he can play and he's got a turn of pace when he's fully wound up. Properly fit, he'll be a proper player for us."
Stiliyan Petrov's own goal gave Pompey an early lead but Emile Heskey and James Milner put Villa ahead by half-time, with Downing heading home in the second half.
Kanu pulled a goal back but Pompey's hopes of extra-time were dashed when Ashley Young completed the scoring.
O'Neill, who won the trophy twice at Leicester, added: "As the Champions League seems to have grown in stature, the League Cup has lost a bit of its lustre. But, if you'd seen the line-up for the quarter-finals, it was very strong indeed.
"The competition seems to have galvanised itself again, with Chelsea and United wanting to win it. Manchester City are very strong, Arsenal are still there. It's particularly pleasing to be in there with that group of teams.
"It would be nice to win a trophy. It was particularly pleasing to do that at Leicester. Of course, it re-energised the football club and gave it a new status.
"With Villa, who have won this on quite a few occasions, it would be nice to be contesting it."
O'Neill confirmed striker John Carew missed the game with a tight hamstring.
Pompey boss Avram Grant, who still needs paperwork completed before he is rubber-stamped as manager, is happy to concentrate on the club'sPremier League survival campaign.
"I don't like to lose, even a friendly game, but the most important thing for us is the league," he said. "We played with players who didn't play in the last game. That's good for them because we will need to use them later in the season.
"A few of them did well. Some of the others will have to wait for the next game."