Resize image when placing - problem

Also being discussed here:

https://community.adobe.com/t5/photoshop-ecosystem-discussions/wrong-image-size-when-placing/td-p/4487627

Thanks for reporting back. So it was a rather extreme case of what I was talking about.

I believe I found the issue. I just updated Photoshop and haven't had a chance to fully test everything.
It appears that a 4800 ppi scanned image as a background increased the imported layers size to ridiculous. I am so accustomed to working with screen resolution, so I accidentally overlooked this.

Some background is needed first:

It's important to be aware of the special rules that apply to smart objects (which is what you're creating here): Smart objects honor physical dimensions, not pixel dimensions. And the physical size is determined by the pixels per inch - ppi - number. 

That's why it can come in at unexpected sizes.

The setting "resize during place" is badly named. All it does is to constrain oversized images to the document boundaries. It still comes in at the size determined by the ppi number.

If you don't want a smart object, just copy-paste, or drag from within Photoshop (not outside).

An oversized smart object still needs to be rendered at full pixel size, even if the source file is lower resolution. Most likely you just don't have enough scratch disk space - that's the most common reason.