I'm considering upgrading the HDD in my netbook. Is there a limit to the HDD gigabyte size a netbook can recognise.

Probably not but we would need specifics of that netbook to verify. That said, most netbooks have very limited upgrade capability. You should verify yours can before spending any money.

The netbook is a Dell Inspiron mini 10 1018.
The installed HDD is a 160GB Serial ATA (5400RPM), and I have a spare 2.5" 320gb drive.

I think if me, I would install that 320G into an enclosure. Then move some of the stuff taking up space to the external drive. Otherwise you will have to deal with transferring the OS and all your programs to the new drive - not a simple task.