Actually I always considered it very strange that Java limits the heap size. A native application can usually use as much heap as it wants, until it runs out of virtual address space. The only reason to limit the heap in Java seems the garbage collector, which has a certain kind of "laziness" and may not garbage collect objects, unless there is a necessity to do so. That means if you choose the heap too big, your app constantly uses more memory than is really necessary.
However, Sun has improved the GC a lot over the years and to emulate the behavior of a native C app, I would set the initial heap size to 32 MB (for small programs) or 64 MB (for bigger ones) and the maximum to something between 1-2 GB. If your app really needs over a 1 GB of memory, it is most likely broken (unless you deal with data objects that large), but I see no reason why your app should be killed, just because it goes over a certain heap size.
Of course, this is referring to normal PCs. If you create Java code for mobile phones or other limited devices, you should probably adopt the initial and maximum heap size to the limitations of that device.