A little more information on this.
I just notice even though I get the error message it did still add the digital item to the store, but when I go to delete the item it shows 0 files.
Some other problems I notice now.
I do not have "Requires Shipping" checked for the digital item, yet when I added the digital item to the shopping cart it adds shipping.
In admin>Stor Configeration I do have shipping conditions set to: $0.00 Between $1000.00 $4.79
But should it only use shipping condition if I have the ""Requires Shipping" box checked?