Think about this for just a second. You open a file, and it has the complete contents of your hard drive, yet you managed to download this file in a fairly short amount of time I presume. Doesn't matter that even with a T3 connection to the Internet, downloading a bare minimum Windows installation would probably take over an hour. Unless you have the cash for one seriously nice Internet connection, you're probably overreacting a little.
But to better answer your questions about people being able to monitor what you're doing, here's a few simple questions.
* Do you have an anti-virus program, and do you keep it up to date?
* Do you regularly run spyware removal programs?
* Do you use a browser and/or email client other than Internet Explorer and/or Outlook Express?
* Do you make regular visits to Windows Update to install the latest security patches?
The more times you say no to the above, the better the chances that SOMEONE might be monitoring what you're doing. Possibly this friend, possibly someone else, it's impossible to tell without access to the computer.
Something strange happened to me the other day. I asked a online friend to send me a photo I had sent him a long time ago. When I opened the file he sent me, it had all my computer files, programs, etc, in it. C:. Is he hacking my computer? Is he capable of seeing everything I do online? If so what can I do about this to stop it? Can I block this? Thank you.