Actually, the limit is much higher then 128x128, though I wouldn't try and push it past 320 x 255... It gets glitchy...
Also note that while your character will be large, the actual collusion field is still 56 pixels tall and 24 pixels wide. (I'm not sure about the width, it's been a while since I've been through that part of the code)
And that is bad and dumb and all that crap but there's not much I can do about it... ... ... :P Okay, technicly there is, since I could fix it for SRB2JTE and pray that Alam ports it into 1.09.1 or something, but that's not the point.
Excellent job spriting, too, it is truely a professional work... Bear in mind, though, you have to make about 180 sprites like this if you want it to be a complete and usable character wad, give or take a couple dosen. Are you prepared to do that many sprites with such detail?