According to the man page, this is the correct method to increase the item size limit.
First of all, it's there for a reason: generally, if you think you need items larger than 1MB, you're probably framing the problem suboptimally for memcached. If possible, consider reframing the problem you're tackling so you can store more smaller items instead of one or a few larger items.
Finally,, what do you mean by "not showing anything in progress"? What progress do you expect? memcached doesn't generally print anything out in normal operation. On an ubuntu box I have, when I run 'memcached -I 2m' then from another terminal run 'echo -ne "set foo 0 0 2000000\r\n$(printf "%0.s----------" {1..200000})\r\n" | nc localhost 11211' I get the expected output: STORED. So it works!
~Ryan