I'm sure that people would take advantage of a "unlimited" character signature. They would spam, post a lot of pictures to stretch the page... etc. I think the 512 character limit is fine.
Maybe the part that should be removed is the BB coding being included in the signature. We are using their coding that they are giving us. I think that should be taken off, or have a separate limit then then rest of the characters.
I have been warned on mule accounts that my signature picture is too big, and being told by a mod to remove it. I don't like how that is set up either. I think there should be a notice or alert that tells you right before/after you save your signature that the picture is too big. It would save time, and moderators wouldn't have to Private Message the individual demanding that the picture is to be removed.