Yes the plugin will unzip zipped blm files.
This is covered in the documentation http://quantabay.com/category/documentation/
The only issue I have heard of is with very large zipped files and very slow cheap hosting the PHP timeout can occur (30 seconds). If it is a host issue that is something you need to resolve. See ‘Troubleshooting’ point 2 of the documentation.
If you can end me the debug logs I’ll take a look for you.