Doesn't XT-IDE fix these kinds of issues?
Iiuc these BIOS's could even be mounted on a NIC.

Well, the limitation comes from the BIOS itself, i think that if you have a controller with it own bios(like a SCSI card) the "limitation" will be bypassed(because it isn't using the BIOS).
Alternatives do exist and it is called Dynamic Drive Overlay(it is a software that will allow you to run a bigger hdd than the BIOS actually supports), the only one that i remember is made by Ontrack.
I heard that some 486 bios doesn't even support 2GB drives, however my 486 is happy with one SD to IDE adapter and it is using a 2GB SD card.
XT-IDE would work aswell.

I use the EZ-Drive dynamic drive overlay for 4GB CF cards in my 386 and 486 systems and it works great. Both of those systems are normally capped at 504 mb. With EZ drive I get 2 separate 2 GB partitions. Phil’s Computer Lab did a tutorial on how to set it up here:

EZ-Drive Dynamic Drive Overlay

My 486 pretty much lives due to large hard disks - my DOS/WFWG install is on a 15GB Maxtor with MAXBLAST DDO on it. Windows 95 lives on a 40GB Seagate with a very late model Seagate DDO on it that actually grants the thing the ability to boot from a DVD-ROM drive - I even managed to start booting off Windows install DVDs, hehehehe. However, this is just my setup - which I'm using these drives on a FIC 486-PVT motherboard with a PTI-255W Western Digital chipset VLB Super I/O Controller card (dual EIDE) set to 260ms latency, so your setup may be effected differently.

On most computers pre-528MB barrier breaking (basically some 486 DX2 and everything back from that), typically require setting the CHS for the hard disk to 1024 cylinders, 16 heads, 63 sectors per track, 0 precomp, and 1024 Landzone - giving the 528MB capacity, and then install your DD0 on the drive and it'll translate the capacity.

If you have a later 486 like mine that can take a >2GB HDD from the BIOS then I would probably do the same using Type 47/48 (whatever user definable type) - that way if you wanted to do what I do - which is swap hard disks using a 5.25" Mobile Rack (basically - hard Disk caddies) then you would never need to go into the BIOS again - just reboot, swap the drive, and viola, I've gone from DOS to Windows 95. I also had to do this to a friend's Pentium system because it would freak out and give a slew of messy characters if we used the Auto Detect on his Socket 5 board, so some Pentiums can be pretty persnickety as well.

If a 2 GB card works, but a 20 GB HDD not, then the BIOS can do E-CHS but no LBA (expected, as to my knowledge no 486 ever supported LBA). So your limit is 8 GB when not using a disk manager / DDO. I recommend EZ Drive, but others should work as well. If 8 GB are enough, you could also check the label of the HDD - often there's a setting for limiting the capacity to just that (jumper or CHS values), as it was a common issue back then.