Unless you also write things to the pipeline via -PassThru specifying -OutFile will read in 10K chunks and write them to the file. No memory apart from that buffer is used. Look at the source, it's public. My PowerShell instance uses 38 MiB of memory the whole time during the download, regardless of the file size.
What's in your $PSVersionTable?
I'm doing this on windows 2008 server.
5.1 on Windows 10. Admittedly, I never really tried iwr on older versions. Heck, the last time I tried downloading something with PowerShell to a file I went the WebClient.DownloadFile route, so it's been a while.
You can probably install a more recent version of WinRM on that machine, though (or by now probably the open-source version of PowerShell).
Knowing all the edge cases, exceptions and places where reality breaks down is the problem.
Where software should indeed work with the principle of least surprise, Microsoft have patented the principle of most inconvenient surprise.
Also SO has one small comment about this which didn't exist when I discovered it. I had to use windbg to dump the CLR heap and find out that there were a crap ton of buffers...
And that's every day using powershell. It's even worse if you trip over someone else's cmdlets which aren't aware of the correct harry potter style incantations to issue that don't cause the universe to implode.
The whole thing is a joke. A bad one.