Um, don't know about that.
If you have more than 8 sub folders, you can't open that particular thing in DOS mode (because it exceeds 66 characters).
I've never heard of an actual space limit. I did a full install on Baldur's Gate (dumped all 5 CDs, plus Tales of the Sword coast, on to my harddrive), and that was like a freaking 2.5GB (with my save games and all).
I've also had a ton on individual files in the same folder as well.
Never really heard of a limit.