Why do I see this error from peeps who are trying to upload from me? It usually happens after they have successfully downloaded two or three files.

This is a limit imposed by LimeWire so that you won't be swamped with downloads. It sets a limit on the number of simultaneous uploads occurring at any one time.
In LimeWire, go to Tools > Options. On the uploads tab, there is a section called "Upload Handling." Here, you may change the maximum uploads, uploads per person, and Auto Clear Completed Downloads. Don't put the numbers too high. On dialup, anything more than 2 max uploads can make all the uploads slow, and they will take too long to complete. You will be kicked off or the person will give up downloading from your computer because it is so slow.

I keep my max uploads at 3 and uploads per person at 1. This way, no one person can hog all my upload slots, and up to three people can download files. I've attached a sample screenshot to show you exactly what the window looks like.

Hope this helps! :-)

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thanks.