I've been researching a lot into hosts for some time now and today I was talking to the Folks at Site5.com about their plans.

I was ready to purchase their plan when I stumbled across this question - I've seen companies like Pair, SmarterLinux, NetFirms etc. (there are the ones who I have asked this question directly ) putting a cap on the maximum size of database allowed, so I thought that I should ask these folks too if they have any such Cap.

Yes, they have a max cap of 200 MB per database on all of their shared plans!

From vBulletin FAQ -

For example, one installation we have seen had 5,800+ members, 40,000
threads, 662,000 posts, 70,000 private messages and 8,000 attachments.
The total MySQL database size was 940MB - which comes to around 140MB
per 100,000 posts. Please note that it does vary from forum to forum,
so your mileage may vary.

This means that I would be able to have about 143,000 posts with
them... even if I upgrade to their largest plan.

Now, I'd be paying them annually... so I'd be really stuck.

I am just wondering that why do these people have this cap? Does it have to do something with performance issue? If yes, then why do some of the other finer hosts don't have it?

My personal musings on the subject. I worked as a lab tech for some time and it seems to me that servers do have physical/electronic limits. A server running at Xmhz speed will require X amount of time to scan its memory. More memory usage will slow down the system. The memory has a physical limit, which can be expanded but it is finite. A better hosting company invests more money in hardware, more memory, faster processors, to serve it's clients.