Yes you can put a log file in the downloads directory but since the plugin is installed on a different domain it won’t have permission to write to that file.
It should be very easy to notify the seller of his product sales. All you need to do is add a bit of code in the post payment handling script that emails to the email address where the money went to (the money obviously will go to the sellers account).
The affiliate plugin also tracks the product ID of the product that generated that commission (this information is only availabe through the admin dashboard though)