I see some more potential in it, that could store up to 16MB of programs - with some more effort. (BTW: I'm thinking of a solution, wouldn't be easy - at least for me. But this is only a list, without the possibility of modification from C64).
Checking 'only' 254 .prg files that they are all OK - that was quite a task for me. Checking 1000 .prg files ... well...
I think 8 MB will be enough for 254 PRG files.
How much time does it take to read whole directory with 254 files?
If it's slow, there's no point to go for more files since there's no support for more directories.