I can't speak for why Alteryx imposed a limit on the Text Input tool but:
The Text Input tool is usually reserved for dummy, freeform, or example data input. If you needed to create a lookup table on the fly or send someone a small example in a module with five rows of dummy data, use the Text Input.
If you have text data already in a file use the Input tool; it has no limit.
That's true. However, I would like to have the data reside inside the module since it's static, protected, and relatively small; it's not worth having it exist in an external file referenced by input tool. Also, it does happen that files get accidentally lost or overwritten which could render your module useless.
I also like the text input since you can make changes right on the spot inside Alteryx. Maybe a Real Text Input tool needs to exist and the current text input tool is a misnomer and should be called sample input tool.
Thank you for your feedback! This feature is actually going to be available in an upcoming release. We'll be sure to update this idea again once the release is available for download.
Thank you for your feedback! We've increased the text input cell limit from 1,000 to 10,000 and improved the performance of the Text Input tool in our latest release 2020.2. You can download that release here!