Dear Melch,
First, regarding the file upload: The file upload is not part of the Downloads for Sale plugin. It simply builds on VirtueMart's media files system. You can use all file types in principle, but some PHP or Joomla installations have the file types that you can upload restricted (i.e. exe, rar, zip disabled). This is nothing my plugin can do.
In particular, the file upload size is also often limited in the php configuration (php.ini on Linux / Apache systems). If your installation has such a limitation set, then no php script can upload a file that is larger. The only solutions are:
1) increase max_upload_size in your php.ini, or
2) upload the files e.g. via ftp and then let VM synchronize the media files with the files on disk on the server.
Regarding your issues with free downloads: Can you describe in more detail what your problems are.
Best regards,
Reinhold