Seeing all the questions about templates makes me feel a little better. Hopefully this has a simple answer, so here goes:

1) I have a template (zip file) from another (non-hosting) web site.

2) How do I upload this template to use on my site?
Do I use the SFTP?
Do I upload the zipped file?
Do I unzip this file and upload a folder
containing the unzipped files? OR
Do I upload each individual unzipped files?

Browser: IE8, Chrome, AOL

OS: XP SP2

Maybe you just phrased that wrong. But I get worried whenever someone talks about "uploading templates". You upload your website as individual files. Th template that is now sitting in a zip-file isn't supposed to go anywhere but your computer. If you by template mean "the website I create based on the template", the answers are Yes, no, no, yes - in that order.

I am guessing that the OP is hoping to somehow overlay the template on the existing site to change its layout.

Unfortunately they don't work like that. If you want to redisign it using a different template then you have to rebuild it from scratch.

Browser: Firefox3.0.5