The question is not what the technology can deliver. The question is what price we're willing to pay for that. It is not a boolean "at this size, things break, and below it, they work". A small constant factor increase will unlikely break anything in the short term, but it will come with higher centralization pressure of various forms. There is discussion about whether these centralization pressures are significant, but citing that it's artificially constrained under the limit is IMHO a misrepresentation. It is constrained to aim for a certain balance between utility and risk, and neither extreme is interesting, while possibly still "working".

Consensus rules are what keeps the system together. You can't simply switch to new rules on your own, because the rest of the system will end up ignoring you. These rules are there for a reason. You and I may agree about whether the 21M limit is necessary, and disagree about whether we need a block size limit, but we should be extremely careful with change. My position as Bitcoin Core developer is that we should merge consensus changes only when they are uncontroversial. Even when you believe a more invasive change is worth it, others may disagree, and the risk from disagreement is likely larger than the effect of a small block size increase by itself: the risk that suddenly every transaction can be spent twice (once on each side of the fork), the very thing that the block chain was designed to prevent.

My personal opinion is that we should aim to do a block size increase for the right reasons. I don't think fear of rising fees or unreliability should be an issue: if fees are being paid, it means someone is willing to pay them. If people are doing transactions despite being unreliable, there must be a use for them. That may mean that some use cases don't fit anymore, but that is already the case.

--

Pieter