With today's computers having several gigabytes of memory, why does TeX still have such limited capacity, and why are modern TeX installations not adjusted for higher capacity by default? Why is adjusting TeX capacity only recommended as a last resort?
(CW from comments)
The answers to http://tex.stackexchange.com/a/27482/963 show that TeX is able to cope with huge documents. However, memory intensive packages such as
TeX was developed when dynamically allocated memory was out of the question for many (all?) operating systems. Changing this model would require extensive surgery on the most delicate parts of the program. LuaTeX has basically been rewritten from scratch, so it can take advantage of more modern C libraries.
Most instances of running out of space, in practice, are due to code loops. except for a very few elements (e.g. math families) that have (historical) structural reasons for being limited, higher capacity can be defined. but if memory failure is caused by a loop, this only results in longer delays and significant frustration. if you know that you will be reading files with significantly long input lines, or reading several thousand files to compile a particular collection, then it makes sense to increase those sizes. but do it cautiously.