When working with moodle, I always encounter file upload size problem (normally 2M). To increase file upload size, edit /etc/php5/apache2/php.ini file (in Ubuntu 9.10) for PHP 5 and Apache 2 by changing the upload maximum filesize to the size you want:
upload_max_filesize=30M
Save the file and restart apache:
sudo /etc/init.d/apache2 restart