imgur is a simple and quick image share service which allows you to upload a picture, manipulate it (optional), and share it with your friends, post it to social bookmarking sites like reddit, add it to your blog, email it, etc.
imgur service is similar to sites such as ImageShack, TinyPic, and PhotoBucket, except that it’s much easier to use, faster, without ads, and among all its free.
The site uses GD to manipulate the image and GD has to convert the image into it’s raw form before it can change it in any way. This causes GD to use a lot of memory on big files. Long story short, 2mb is the limited size of the image they can afford for the general public.
Just check out their faq’s to know more about their services.