The limit is 256MB nothing more, nothing less in terms of the actual app executable files that aren't part of the untouchable system partition. The ROM itself is 512MB but half of that is locked down from the system partition and other things you cannot change. So if you download enough apps whose executable sum is greater than 256MB you've hit the limit. Separate from this, there is 256MB of RAM that gets used for the running of the applications - you see this number when you look at a task killer. Mine hoevers around 30MB free pretty much regardless of how many apps i have installed. The reason is because 1) not all your installed apps run at the same time and 2) the os is opmitized to kill processes that are no longer in use to keep your free RAM at about 30MB or higher. Note that the ROM for holding installations and the RAM for running are 2 different things.
So basically, you're limited to 256MB of executables for your apps. Yes some iphone apps use like 60MB for executables, that would crush your droid experience. HOWEVER, apps of this nature can be developed so that the executable is small in data size, and the resources it needs are indeed stored on the sdcard. It is just the executable that must be on the internal memory. SpacePhysics is one example of this as the downloaded executable comes with just 1 level to save space. To get the 80 levels, you download another small app that puts all of the levels on your sdcard.
I'm currently at over 80 apps downloaded myself and the speed of my phone has not changed by any significant amounts and I have about 110MB of space left on the ROM for exectables. Scaling this I can probably get close to 150 apps before hitting the 256 limit.