There is no such limitation on an iPhoto library. It will grow until it fills your drive, if you let it.
You have something else going on. You've stated that you have a dual 1TB configuration, but how are the drives configured? My suspicion is that your boot volume, and thus your home directory, is on a small partition which doesn't have enough space to hold your iPhoto library.
You don't have to have the iPhoto library on the boot drive it can be any connected drive or volume. See the following two Apple articles for how to move existing iPhoto libraries, create additional libraries, and select which is being used.