So if I'm understanding this, I now have all my blog posts on one page(which now takes quite a while to load)
No, that's not correct. Only some posts load, and if you scroll to the bottom of the page, another set of 7 posts load. You might try giving infinite scroll a try, or consider checking with your audience to see if they like the feature. :)
I'm wondering If you buy the template and server space, do you have control over this sort of thing?
You don't need to buy anything at WordPress.com disable the infinite scroll feature. We did add a way to opt out of it, but we've found that only a small percentage of people actually did opt out and some those people turned it back on again later. WordPress.com themes don't use infinite scroll if footer widgets are present. So to turn it off, you can do what timethief mentioned and add a footer widget and then uncheck the "Scroll Infinitely" option on the Settings → Reader page in your blog dashboard.
So I googled the problem, and I guess I can add code to the template to make it what it was previously, that is, two posts on the home page.
If you would like to have full control of the WordPress code including the ability to add themes and plugins and modify any of the code, you can do that by setting up the downloadable WordPress.org software on your own web hosting account. It comes with extra responsibilities such as paying a monthly fee for a web hosting account and installing and maintaining the software on your own. If this sounds like something you'd be interested in, you should switch to a WordPress.org steup. Here's some extra information about the differences: http://en.support.wordpress.com/com-vs-org/
Seems like a lot of run around. Do arbitrary changes happen like this a lot?
The change wasn't at all arbitrary, but yes sometimes changes happen as WordPress.com is forward moving and always updating.
Check out the differences between WordPress.com and WordPress.org. Both are good but bring different options to the table, and you should pick the one that's right for you.