Indeed there is a default maximum size. If the package is over 384 MB or so it will get rejected. We do have an unpublished tool you can use to increase the default.
The EXE has built in help, just run the EXE to get the help. The EXE needs to be run on a machine with the WSUS console installed – preferably the WSUS server or the Patch Manager server.
The syntax to be used is:
/action setmaxcabsize /targetwsusname WSUSServerName /targetwsusport portnumber /maxcabfilesize sizeInMB
There is also a /targetwsususessl parameter, which should default to NO. If the WSUS server is using SSL, or if the command doesn’t like the missing parameter, then also add this parameter with the correct value YES | NO.
Hah, I'm wrong again. Good to know!