How many players can be connected to a MUSH at once? There are 3 factors which affect the answer to this question.
The operating system
Each player connection comes in over a TCP/IP socket, and each socket require that the operating system allocate it a "file descriptor", a number which refers to that socket. In addition, each file which is opened by the MUSH process (standard input, standard output, standard error, one for each log file, one reserved for reading help/news/events files, one to accept connections) requires a file descriptor.
Most operating systems have limits on how many file descriptors a user's process can open. Some typical limits are 64, 128, 256, or 1024. Sometimes there will be a 'soft limit', which is lower than the maximum, and which you can increase (via the 'unlimit' or 'ulimit' commands) up to the 'hard limit', or system maximum. The hard limit can only be raised by the system adminstrator recompiling the system's kernel. This is not too bad to do when you have kernel source. Note: SunOS 4.1.x systems have (by default) a limit of 256 descriptors, but there's a bug in the stdio code which prevents descriptors after the first 128 from working correctly. :(
When you run out of descriptors and the MUSH tries to open another one, it will likely either crash or hang. Since the MUSH requires about 10 descriptors for itself (6 if you define SINGLE_LOGFILE), subtract that from the hard limit to figure out how many players you can support.
There's also a practical limit. The more players you have connected, the more work the CPU has to do to service the process, the more memory will be used (for player objects and for all those queued commands), and the more load will be placed on your network connection. At some point, your game will begin to lag increasingly. Once again, little can be done unless you have a budget for better hardware.
Setting login limits
Finally, you can set a limit on how many players your MUSH will accept in your mush.cnf file. Usually, you just want to set your login limit at the highest practical value, taking the above things into consideration. So, if you've got a max of 64 file descriptors, and you don't define SINGLE_LOGFILE, figure you can have 54 players connected, and set login_limit accordingly. Remember, however, that your admin and players with the login @power can connect even over your login_limit, and if they run out your file descriptors, expect bad things to happen.