I was running into it back with the first-gen Kindle myself. My understanding was that the limit came into play because the Palm file format MOBI still uses 64KB 'blocks', and that it wasn't guaranteed that any MOBI reader would ever support reading image files from multiple blocks.
64KB is the limit imposed by 16-bit memory addressing, but even with segmenting, an 8-bit CPU with 16-bit memory addresses can only address 64KB at one time, so making that the limit for a blob of data in a Palm DB doesn't make a whole lot of sense. My understanding is that even the first pilot used a 68k-based chip which would have been a 32-bit processor.
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