Setting higher upload limit

add this to your .htaccess file in the root of WordPress installation directory:

php_value upload_max_filesize 20M
php_value post_max_size 20M

and you can change 20 to whatever you want, unless your hosting server is limiting it it should work just fine.

Update:

Create the php.ini File and add the Following:

memory_limit = 20M
upload_max_filesize = 192M
post_max_size = 20M
file_uploads = On

then Upload the File to your wp-admin Directory.