Q: Why am I Limited to 25 SQL Server Instances on a Windows Cluster?
A: The reason for this, in SQL Server 2008 R2 and below, is drive letters. Each clustered instance of Microsoft SQL Server requires it's own drive letter. As Windows only supports 26 drive letters, and you need one for Windows (typically the C drive) that leaves 25 drive letters left for SQL instances. This assumes of course that you don't need access to the local CD/DVD drive, and that you have a majority node set and not a disk majority cluster (you need the drive letter for the Quorum drive for a SQL instance after all).
Now, with SQL Server 2012, you can get around this limitation by using network file shares to host the databases for the clustered instances. This will let you get around the 25 instance limitation and as a bonus you'll still get to use your CD/DVD drive to install software.
Now, all this being said, I wouldn't ever want to install this many SQL instances on a production SQL Server. Not to say that people don't install a bunch of instances on SQL like this, but I sure wouldn't recommend it.