Sher,
My suspicion is that the HUGE sigs here are done thru using links NOT uploading thru your puter hard drive. If it's simply a link to some other place the pic is kept...then it doesn't count against the entire limit of the sig.
This is at the bottom of the sig pic upload box so yes, there is a limit...
"Note: The maximum size of your custom image is 500 by 100 pixels or 19.5 KB (whichever is smaller)."