As I understand it, the max file size that DreamHost's install of Net2FTP can handle is around 7MByte, due to restrictions imposed by the default PHP settings. This is quite a bit larger than the 1.6MB you require. As a test, I just uploaded/de-compressed a 3.9MByte file using Net2FTP with no issues.
The general procedure I use is to keep a local copy of all files on my websites. I make any changes to the local copies, using the editor(s) of my choice, then upload any modified files.
While CPanel may be easier for those not too familiar with the details of how things fit together, in my opinion the DreamHost Panel offers far more versatility, once you get used to how it operates.
No, there is no all-in-one solution here on DreamHost. The Panel does offer all the functionality you need to configure your domains, emails accounts, databases etc, but you will still need other tools to get the job done.
A good FTP client is something that you should invest in if you intend to make the most of your DreamHost hosting. I use FlashFXP under Windows here, but there are many other fine FTP clients available for all operating systems.
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