Thanks to a helpful hint on Twitter, I just found out that Microsoft has decreased the amount of storage that skydrive offers for free from 25gb to 7gb. However, for a limited time, you can increase the amount of storage from 7gb back to 25gb. I am not sure, but I think this applies to existing users only. If this is true for new users as well, please let me know. To do so, just go to https://skydrive.live.com/ManageStorage?lu=1 and login (if you're not logged in already.
This change makes sense because with windows phone and windows 8, skydrive integration is big, giving people more of a reason to use skydrive as opposed to services such as Dropbox. The number of users is also growing and Microsoft could be using this as an opportunity to consolidate resources.