My how they grow fast, don't they? Originally, Microsoft said that Xbox Live Arcade titles should be 50 megabytes or less. Today they've bulged well past the 1 GB barrier. Microsoft has confirmed that 2 gigs is the new max.
At Tokyo Game Show, IGN brought up the ballooning size of XBLA games in an interview with Microsoft's director of digital games, Scott Austin. Austin acknowledged 2 gigabytes is the new maximum, but not through any edict from Microsoft; it's because of a technical limitation of the system serving those games.