OK -- thanks for the detailed info, that's what I was hoping for.
I've done two things. First of all, I upped our internal filesize upload limit from 2 megabytes to 5 megabytes. Second of all, I upped the server "timeout" for uploading files. I remember you said you were on a slower connection. We were set to "timeout" after 60 seconds. Now, I've moved it up to 600 seconds.
Try again, let me know if you get the same error.