The maximum is set in the config file. Either main.inc.php for version 0.9.x and older, or config.inc.php for version 1.0-rc.
The parameter to change is:
// don't let users set pagesize to more than this value if set
$config['max_pagesize'] = 200;
In 0.9.x and older, just change the parameter in main.inc.php. In 1.0-rc, you'll need to add the line above to your config.inc.php and set the value appropriately.
FWIW, I also have mine set to 1000. Hasn't hurt a thing.