It's possible to have a Collision on any hashing algorithm. You simply can't represent all of the information in the amount of space that it uses. Otherwise we'd all be using hashing algorithms instead of compression algorithms.
The chances of hitting a collision are very small. For things like passwords, they contents are usually very small. Collisions with the same hash will likely be much larger, as well as gibberish. With an ISO, the collision file might not even be bootable. An archive file probably will be unextractable.
MD5 has several ways for people to find collisions for a given hash. I'm sure other hashing algorithms do too. I believe md5 has some collision problems where you can change a small amount with no hash-change, which is why a lot of people don't recommend using it.
Some places also store the file-length (or content-length). That helps a bit with preventing collision attacks.