I am a newbie when it comes to Moodle, but I did figure out how to modify the max upload settings.
This is for those that don't have Apache2. I'm also using the Debian package for moodle, so there could very well be other differences I'm unaware of.
Edited: /etc/php4/apache/php.ini
Modified:upload_max_filesize = 2M
post_max_size = 8M
Edited: /etc/moodle/apache.conf
Modified:
php_value upload_max_filesize 2M
php_value post_max_size 2M
Then I restarted Apache.
/etc/init.d/apache force-reload