Files menu calculate space on flash memory (16MB)
However, root folder in file menu is actually ramdisk which has usually more than enough free space - as long as your RAM (128MB) is not completely full.
Therefore, as long as you load the downgrade files into root folder instead of "flash" folder, you shouldn't have any issue, even if it is larger than displayed "free space".
ps: about your drop rules - is it possible that these are just connections which were established before you reset your device and now, they are considered invalid because they are not in conntrack anymore? If that is the case, it will likely happen with any version after reboot.