Well I couldnt stand it, I figured it had to do with the way memory was getting handled in a 32bit enviroment as it relates to the w3wp service. I am guessing its the generic way it imposes limits on allocating of memory since it knows it has a 4gb memory max... I have completely lost my technical articulation for all the terms since I have been chugging away all day but I installed everything on a 64bit Athlon setup with 2 gigs of ram at home and it ran without any hassle on file size limitations (for right now at least).

Noticed differences so far have been, the w3wp.exe process gets a noticeably larger allocation of RAM even though its the same amount we have in our servers at work. I also noticed a much more healthy recycle of memory (this is without imposing recycle limits in the application pool properties in IIS).

Like you said Mike, I am 99% sure this happens with all asp.net apps that attempt to upload huge files in a 32bit enviroment just because and for lack of a better term, Windows gets scared of what seems to be runaway memory usage and locks it up for what I assume and by design is a fail safe.