Limits, and what are they?

What are the limits to which we can stretch ourselves when we write? For a setting such as FiM, where the fantastical is the ordinary and the everyday, is there a limit to which we can stretch our suspension of disbelief? Even with appropriate justifications present, can we make something that is too fantastical for FiM?

Or, for that matter, can we make something that is too mundane? Is it possible to write something which is too ordinary, too everyday, for FiM? What would such a story look like?