I have Steam on a dedicated 3TB drive and even though I keep all my games installed I still have plenty of space left over (my Steam folder is 1.47TB). And with Storage Spaces in Windows 8 you can create a non-redundant or redundant array consisting of several drives with minimal effort, so I've never been too concerned about such a limitation.
However, this feature should have been included from the beginning. I can imagine some people wanting to keep their most played games on a SSD which are notoriously limited in capacity (or using smaller drives if they're on a budget) and I find it bizarre that Valve took this long to implement it. It's hard to applaud Valve for such a basic feature but it's better late than never.