In my "Muvipix.com Guide to Premiere Elements" (available on Amazon), I recommend not using a photo larger than 2000x1500 pixels unless it's absolutely necessary. And, even then, not much bigger.
Remember that high-def video is 1920x1080 pixels. No matter how large a picture you use in a video, only 1920x1080 pixels are actually going to be used. The rest are discarded or interpreted in a process that slows down and sometimes even chokes the program.
You won't get a sharper video by using a higher resolution photo, since all a video can be is 1920x1080. In fact, as I explain in the book, the closer the photo is to the resolution of your video project, the better the video will be.
(And, yes, I know that Premiere Elements can edit 4k video -- but that's a whole other animal.)
What version of Premiere Elements are you using and most importantly what is the computer operating system 32 or 64 bit?
There is a difference between should do and can do. I am addressing your specific "can do" question about max still image size.
If you have Premiere Elements 10, 11, 12/12.1, or 13/13.1 on a 64 bit computer operating system, the program will allow you to import a still as huge as 10000 x 7500 pixels. I am not encouraging you to do that, but that is just for your information. However, if you have Premiere Elements 10, 11, 12/12.1, or 13/13.1 on a 32 bit computer operating system, the program will block the still import which has total pixel count over its limit. Please see the following which addresses that limit in its post 6
If you have Premiere Elements 9 on 32 or 64 bit computer, you will get the too large message when your still image pixel count exceeds the program's limit.
About the recommended not to exceed still pixel dimensions 1000 x 750 (4:3) for SD and 2000 x 1500 (4:3) for HD and using those specific values...
a. to benefit most from that, the recommendation as written in a blanket fashion should include "with preference Default Scale to Frame Size disabled" before the import.
b. if you use still 2000 x 1500 4:3 for HD 16:9 project and want to apply pan and zoom effect to that still with the program's Pan and Zoom Tool, the space in the Pan and Zoom workspace will be a 4:3 looking one, not 16:9. For 16:9 space in Pan and Zoom workspace, you need to import a 16:9 still. The Pan and Zoom workspace traces back to the original not what is on the Timeline which has been scaled to fit the 16:9 space in the Edit area monitor of a 16:9 project.
The above have been my observations. Please review, consider. If any questions or need clarification, please do not hesitate to ask.