In my opinion, I do think we should have some sort of upper limit to region sizes, but only for the initial claim. Once the initial claim gets filled up, I think the region owners should then be able to expand outwards, so long as nothing is in the way. I'm not sure what the exact limit should be, but Hollifer's suggestion of 500x500 seems like a good place to start and we can adjust it later if this turns out to be too big or too small.
Also, should 500 still be the maximum length even if the width is very small, for something narrow like a road?