I’ve followed up on this a bit and it seems that actually there is an internal limit on the GraphHopper side. Basically, what ORS does is to use GH’s default location lookup settings regardless of the radius and to return an error if the distance to the point found exceeds the limit set by the radius. However, the search on the GH side is bound as well by index.high_resolution and index.max_region_search configuration parameters which are currently set to 500 meters and 4 tile iterations, respectively.
Unfortunately, the technical details in LocationIndexTree seem quite obscure such that it is not entirely clear to me how these internal parameters could be easily translated to the actual distance.