When I download anything from anywhere, with windows Xp AND with windows Vista.. I have noticed something strange. Why is it that I am downloading at 1.6mb/s and it shows that I am using 15% of my 100Mbps connection? see the attached photo for more details.

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Your mixing up to terms MB/s and Mb/s they are diffrerent by a factor of 8.

1.5 MB/s is shown as the speed ur downloading , that is equal to 12Mb/s which is 12% of your 100Mb/s connection to your rotuer (NOT to your ISP), which is then connected to your ISP

There will then always be other bits of trafic flowing which will effect the speed a bit, but there is nothing strange happening here

so technically i can only transfer around 15MB/s across my network? is that the truth?

If you're talking about 2 machines transferring on a 100Mb network, the max you'd get between the two is 12.5MB (25MB if it's full duplex, theoretically).

However, assuming you're using the TCP/IP protocol (default in Windows), and even if your network runs at 100% efficiency, for each Mb of speed you'll see anywhere from 20Kb to upwards of 128Kb TCP overhead depending on the network config and potential changes / tweaks that are (or are not) on your machine. At 100Mb/sec, you should expect on a well maintained, good network to see upwards of 4-12Mb/sec of that be simple TCP overhead depending on the machines and network equipment at each end.

And those of us who have done this for a living know that those are good numbers, and normal operations sees higher overheads due to other issues as well - seeing over 10MB/sec transfer on a 100Mb network means you're getting great transfer speeds (of course gigabit networks will provide much faster throughput, but you will also see more frame and TCP overhead...).