That error is not generally due to having a 2meg upload limit in php, but having not enough memory allocated to php.
Its not the size of the file that is the issue, its the amount of memory that php needs mess with the file after its upload (ie resize it, or create thumbnails etc).
In you php.ini file, look for the line
memory_limit = 8M
and change it to
memory_limit = 64M
You can set it to less that 64 megs if you want. I personally use 128 megs in php5.
This limit is only the maximum amount of memory that a php process can consume, and is designed to prevent a single php process from using up too much memory.
Hope that helps.