...Wait, this file is 128MB!? Wow...Does it take up that much extra space on your BB or does it replace the existing software that's on there and effectively leave the BB with the same amount of space??
(I've Never uprgaded my software before this obviously)
Run the file you downloaded to install it to your PC.
Delete the vendor.xml located on your PC's C:\ drive
Run Desktop Manager. If it's an upgrade from what you currently have installed on your BB it will prompt you to upgrade. If it's not an upgrade run Application Loader and you should see a list of the software already installed on your BB.
Then you are opening the wrong file. Download the OS Update package. Save it to your Desktop. Then double click on it. That will install it to your PC. When it's complete plug in your BB and run Desktop Manager.