Sharepoint 2007 uses by default limit of 50Mb when uploading files to document libraries. The files are stored as binary data in database on MS sql SERVER.

Increasing this limit is possible. But is it not recommended? Can it seriously effect perfomance of the server? Any Sharepoint gurus can share some experiences on this issue?

50mb is there for a reason. Because Microsoft .Net and Sharepoint are so complex, it is difficult for it to handle large files.

Fortunately Sharepoint 2010 is more flexible and allows for much better storage and uploads of more and larger files