Actually, you should have gotten

s%
;\s+This\s+code\s+does\s+something\s+fancy\s+
enable\s+fancy_command\s+
wait\s+\(fancy\s+=\s+true\)\s+or\s+for\s+\$max_time\s+
if\s+\$\$error\s+=\s+\$time\s+out\s+
    write\s+"Oh\s+crap,\s+the\s+fancy\s+thing\s+didn't\s+work!"\s+
    deal\s+with\s+not\s+working\s+
else\s+
    do\s+fancy_command\s+
    write\s+"fancy\s+command\s+done!"\s+
endif\s+%TESTING
%six
[download]

which can be used as follows:

perl -i~ -0777p sub.pl *.cstol
[download]

-0777 causes the whole file to loaded into $_.

Update: Oops, that command is the same as you gave. I've just tested it and it works. Perhaps you didn't have a newline after the last endif?