It seems that nginx buffers requests before passing it to the updstream server,while it is OK for most cases for me it is very bad :)
My case is like this:
I have nginx as a frontend server to proxy 3 different servers:
#3 is the problem, right now what I have is that nginx buffers all the request and then sends that to the file upload server which in turn sends it to cloudfiles instead of sending each chunk as it gets it (those making the upload faster as i can push 6-7MB/s to cloudfiles).
The reason I use nginx is to have 3 different domains with one IP if I can't do that I will have to move the fileupload server to another machine.
According to Gunicorn, they suggest you use nginx to actually buffer clients and prevent slowloris attacks. So this buffering is likely a good thing. However, I do see an option further down on that link I provided where it talks about removing the proxy buffer, it's not clear if this is within nginx or not, but it looks as though it is. Of course this is under the assumption you have Gunicorn running, which you do not. Perhaps it's still useful to you.
EDIT: I did some research and that buffer disable in nginx is for outbound, long-polling data. Nginx states on their wiki site that inbound requests have to be buffered before being sent upstream.
"Note that when using the HTTP Proxy Module (or even when using FastCGI), the entire client request will be buffered in nginx before being passed on to the backend proxied servers. As a result, upload progress meters will not function correctly if they work by measuring the data received by the backend servers."