sphere doesn't take much more than 1MB, the space required for a big game just depends on the ammount of code, graphics, etc you include in the game. (our project so far doesn't go over 1MB when zipped :) )
to apply read the essay I wrote at the Member recruitment thread.
As for the limits... your imagination I think :)
with more or less patience you can get basically anything done, sphere also has connectivity support for online (which we will add as a room like the wireless room in FRLG where you can trade/battle, etc), you can run the game on real resolution (240x160) or 2x that or even full screen, all it requires is to have Open GL drivers which 96% of the graphics cards in the world support (if it is less than 8 years old I bet it does).
Sphere also has a nice way of getting the current time on your computer which is much easier to create a clock, and it takes less lines of JavaScript code to achieve the same as you do in Ruby :)