I have a 250gb HDD in my PS3. I think that's the limit.
The save file thing reaaally bugs me though. When I look at it I think the 360 has the same issue, but then it'd require the HDD on the 360 to play it which Microsoft wouldn't allow. It looks like a mistake to me, or else I think it's pulling a Brawl where it marks its' territory first and won't let you get that space back even if you don't use it.
But, I don't think this is true. I've heard the install cap on PS3 is 5gb.