Yeah, the 1MB max block size is an arbitrary limit meant to stop the chain size from expanding too quickly. The technical limit is much higher (probably at least a million transactions). Satoshi planned to increase the max block size when legitimate transaction volume made it necessary. This requires everyone to upgrade, but it can be rolled out over several years, so it's not a huge issue. Probably some other chain-forking change will be necessary before it becomes a problem.
The current average transaction count per block is ~60, so we're far from the limit.