This is caused by an error in the metadata for Frotz and the ability
to do this will be restored in the next update. See the last
paragraph of this post for a workaround.
It actually wasn't 'early with Frotz'. The ability for iOS apps to
register as handlers for custom file types was added in iOS 3.2 (iPad)
and iOS 4.0 (iPhone). The first version of Frotz to support this was
Frotz 1.4, and this appears to be the feature you're talking about.
Because of Apple's App Store restrictions, Frotz (or any app) is not
allowed to directly download game files because they are "interpreted
content". Frotz 1.0-1.1 was able to do this, but Apple rejected
subsequent updates until I removed the feature, so 1.2 and later do
not support direct downloads and instead have bundled archives.
However, with the aforementioned custom filetype ability, Apple
introduced a loophole to their restriction you could drive a truck
through. You just let Mail or Safari download the file, then use
"Open In..." to launch it in Frotz. This feature was disabled because
of an unfortunate typo in metadata that lists what filetypes Frotz
handles, and will be fixed soon.
You can still manually transfer any game file you want to Frotz from
any computer with a web browser on the same wi-fi network by using
Frotz's File Transfer server. Select it form the (i)nfo/settings page
and follow the instructions.