Is there a reason? Can it be that this works in a future version again?

I did a bunch more research.  I'm using a Windows 2003 32 bit SP2 with 4GB of RAM (it used to be hardware and it is a VM now, but we haven't had a chance to update the OS - we will with our move to DNN6).

It seems to be a problem with the ASP.Net 2.0 FileUpload control which is used in the background by DNN and was originally designed for a 4MB max upload.  From my experience, you can't go around the problem using other upload controls (which do work well for slower connections and timeouts) or dropping it on the file system, as the Synchronize button in File Manager uses the same code

The 4MB can be increased in config files to large limits, but the x32/ASP.Net 2.0/IIS/Thread management combination just doesn't work above a certain limit.  Rebooting or doing an IIS reset right before the upload helps with the limit and I have gotten up to 250MB files to randomly work.

I could be totally wrong on this whole path too, but I've given up until I get to W08 R2 with DNN6 sometime this fall.