Looks like this has come up before, 2.5 years ago: http://arclanguage.org/item?id=10462 [1]. Rocketnia's recent comment also turned out to be a surprisingly relevant clue, with its reference to make-limited-input-port: http://arclanguage.org/item?id=16202.

(readc req!in) seems to get stuck before reading the whole thing. Here's the source:

  (w/outfile o f
     (whilet c (and (> n 0) (readc req!in))
               (-- n)
               (pr "n now is " n)
               (disp c o)))

  (mac form-multi (n . body)
    (w/uniq ga
      `(tag (form method 'post
                  enctype "multipart/form-data"
                  action ,n)
         ,@body)))

  arc> (= i 0)
  arc> (w/infile in "x" (whilet c readb.in ++.i))
  arc> i
  400000

Can you read the file that was POSTed and save it? Ignore parsing out the multipart stuff. Just save what came in through the request.

Here's the test at /upload_is_broken

  (mac form-multi (n . body)
    (w/uniq ga
      `(tag (form method 'post
                  enctype "multipart/form-data"
                  action ,n)
         ,@body)))

  (defop upload_is_broken req
    (form-multi "upload_static"                           
      (gentag input type 'file name 'name)
      (submit "upload")))

  (defop upload_static req
     (withs (n req!clen
               f (string "/dev/shm/" (uniq)))
            (pr "saving multipart data\n")
            (pr "clen is " n "\n")
            (w/outfile o f
                       (whilet c (and (> n 0) (readb req!in))
                               (-- n)
                               ;;(pr "n now is " n)                                                                         
                               (writeb c o)))
            (pr "SAVED multipart data. Success!!!\n")))

  saving multipart data clen is 1591333 SAVED multipart data. Success!!!

http://tyche.pu-toyama.ac.jp/~a-urasim/lsvl/data/bzip2_1.0.5...

  $ md5sum bzip2_1.0.5.orig.tar.gz 
  3c15a0c8d1d3ee1c46a1634d00617b1a  bzip2_1.0.5.orig.tar.gz

  saving multipart data clen is 841607 SAVED multipart data. Success!!!

  server {
    listen 80;
    server_name  somewebsite.com;
    access_log /var/log/nginx/somewebsite.com.access.log;

    location / {
      proxy_pass        http://somewebsite.com:2012;
      proxy_set_header  X-Real-IP  $remote_addr;
    }
  }

I tried setting the following in /etc/nginx/sites-available/somewebsite.com:

  server {
  # ... various vars as in http://arclanguage.org/item?id=16317 plus the following:
  client_max_body_size 10m;
  }

In both cases uploading the bzip2 file hangs.

I also tried setting client_max_body_size in /etc/nginx/nginx.conf but there get a different error:

  Restarting nginx: [emerg]: unknown directive "client_max_body_size" in /etc/nginx/nginx.conf:31