Is it possible to set permissions with each file in Mydownloads so that onyl users of certain permission level can access them?

not with the current mydownloads module..

WF-Downloads has that functionality and does work fine for this.. altho there are lots of problems regarding user submissions.. (they can download but not upload due to a few errors in the script) these issues are being dealt with and an updated version will be released once completed..

however you can submit downloads via the admin panel.. it's just the user submit that doesn't function..

You can also use WMP Downloads which can be downloaded from my site. Basically exactly the same as the mydownloads module with group permission on a category and file level basis.