Sorry about the delay. So, to sum up, I think the problem was between the monitor and the keyboard :)
The downloaded .vhd did not have the .vhd extension.
So when I clicked on download disk from the azure portal, the output file was "abcd (2)". Seems like the portal does not provide an extension
That's why it was uploaded without any extensions, because it had none to start with. I somehow missed that it had no extension.
And to clarify what I was trying to do: I needed to move a drive from one location to another (in the same subscription). If there is a simpler way to move it, please tell me, but the only way I was able to do this was to create a bkup of the drive in location1, download the .vhd locally, (without the proper .vhd extension :) ) then, upload this .vhd to a blob storage in location 2, and then, create a drive in location 2 from the blob storage.
I would have loved a edit button in the portal, change location to location2 .... and done.