Today i came across one point where it is clearly defined that we can upload maximum 50MB sized APK onto the market. So indirectly, we can install an application from a market having maximum 50MB size.
Here is a link: http://www.google.com/support/androidmarket/developer/bin/answer.py?hl=en&answer=113469 , here just check the below sentence.
APK file size: Maximum supported size is 50MB.
So its clear that we can upload maximum 50MB sized APK file, but if we are developing application locally and running/testing for the internal purpose then it is fine.
Update – 6 Mar 2012
Android Apps Break the 50MB Barrier and expanding the Android app size limit to 4GB., check this tutorial.
Update -28 Sep 2015
The Google Play team (ANDROID DEVELOPER BLOG) ::(GOOGLE) update the max size limit. They are increasing the APK file size limit to 100MB from 50MB. This means developers can publish APKs up to 100MB in size,Please refer this link for more information:Google Developer blog