The answer to that is easy: 200 meters (if flight isn’t locally deactivated), unless you have a flight assist of some kind, such as a Flight Feather or jetpack script. With one of those, the ceiling is unlimited.
Ah, but what effects do high altitude have on that luscious virtual body of yours? Well, that’s changed over the years. Here’s the skinny on it as of August 2007, thanks to the Wayback Machine known as YouTube, and Daedalus Young:
I wasn’t aware that your avatar started deforming as you went higher. Could it be that the magnetic containment bottle that surrounds your avatar shape starts breaking down (WHAP!) —
Okay, okay; sheesh, let a girl have a little fun….
Anyway, as you can see from the tape, Daedalus’ body starts getting twitchy around the eyebrows somewhere between 40 and 80 km high. Around 100 km, the avatar’s arms (and probably legs, and any other [ahem] extremities) start losing their vertical hold, so to speak. That isn’t a case of the jaggies, it’s a case of the chunkies! Looks more like Plastic Man with the hiccups.
Finally, in the really outer stratosphere, 1,000 km up — that’s one million meters, for us Americans hopelessly stuck in English measurements — you might as well be a scarf flapping in the breeze; nothing is recognizable at all. According to Daedalus’ notes, much above the 1,000 km mark, and your avatar just disintegrates; nothing visible of the body at all. For Daedalus, he didn’t regain cohesion, even after returning to surface level, until he logged out and back in.
Beyond the visual effects, Daedalus noted that it was a boring ride. Building is limited to a ceiling of 1,000 m or less, of course, and so the rest of the distance is nothing but sky and horizon. I suspect that Daedalus laid something on his keyboard to hold the fly up button depressed, until he got where he was going. It took a while!