We've just had the same issue here...it seems to be something to do with the standalone Windows install of Moodle.
Here's our situation...
* A hosted version of Moodle 2.5 which we are moving away from
* We've backed up and downloaded courses to a PC
* On my colleagues PC, we installed a standalone version of Moodle 2.8.5
* Every time we try to upload a backup into the standalone version, it stalls during the upload process
* We can take the backup and restore it into 2 separate hosted versions of Moodle 2.8.5 with no upload problems at all
* To make sure it was the standalone version that was causing issue, I also installed the standalone version, and I cannot upload any of the backups to restore them
Hope that helps? Am I missing something I am meant to do on the PC? (Note - I'm a Mac user mostly, so not sure what else I should do on Windows 7)