We've arbitrarily set a limit of 500MB to keep download times reasonable.
Arbitrarily implies at random or without reason... if the reason was to keep download times reasonable then it wasn't exactly arbitrary now was it?
While I think it's nice they want to up the size ceiling on their e-distribution games, I think they're missing the point in some ways.
The whole idea is that the games are so small, cheap, and simple that disc based distribution doesn't make sense. When you're making games that approach footprints close to that of a CD they no longer fall into that category.
It's apparent that MS's limitation is based on their memory unit size, and it's also apparent that they could deal to make it a bit larger with games like Lumines Live having to be split up into a main download an an "expansion" to fit within that limit.
But I also think that by going with something half a gig in size, Sony's kind of missed the point.