This is not a Commerce File issue but rather the way the webserver was
set up. It happens when HTTP compression is enabled on Apache (or IIS)
and Internet Explorer 6, 7 and 8 does not handle HTTP compression well
and your Apache server is set to compress zip files which are already
compressed.
So the two ways to get the downloads to work is to either go in to your
IE Tools>Internet Options>Advance tab and uncheck "HTTP1.1" and to clear
browser cache. But this is not suitable for a Commerce website because
you can't expect your clients to go through all of this to download
something they bought, so here follows the solution that worked for me:
In .htaccess I added this line right at the bottom:
RewriteRule ^(.*)$ $1 [NS,E=no-gzip:1,E=dont-vary:1]
Then I cleared all cache on Drupal and voila it worked! It must be noted
that this does disable all compression on your website...but it works
which is important :)