What is the largest capacity hard drive the system will support

Yes & No here ;-}

Yes, your system can support larger 3.5" drives than what you currently have and if you are using one of the newer versions of OS-X it too will support it. Here's a useful Apple tech note: Mac OS X: Mac OS Extended format (HFS Plus) volume and file limits as you can see you're not likely to hit this limit either - 8 exabytes (EB) ;-}

The No here is many of the newest super sized drives are fixed SATA III (6.0 Gb/s) which won't work in your older system which only has a SATA II (3.0 Gb/s) I/O port.

But! There is a few drives which have SATA port auto sense technology and in addition have a deep SSD cache which will work in your system. We call these drives hybrids as they are not just a traditional HD. Here's one I would recommend: Seagate Desktop SSHD. So as you can see you could go up to a 4 TB drive if you want to.

Here's the IFIXIT guide you'll need to follow: iMac Intel 24" EMC 2267 Hard Drive Replacement. Review it so understand what the steps are.

The last thing here is you'll want to prep the drive before you put it in. You'll need this adapter: Universal Drive Adapter it will allow you to hook your new drive to your system so you can format the drive and install the OS on it before you swap it out as well as allow you to migrate your user accounts, apps & data files over.