In case you see a few sites running a story about being only to install paid-software five times on your Windows Phone before you are basically forced to re-buy the app for the sixth installation, we'd just like to point out that it is false. Or rather, things were lost in translation. The mistake was easy and innocent enough to make: throw in a French Microsoft support forum, some mis-communication and Google translation and you can see how one could confuse five installations vs five devices.
In case anyone remembers, going back to the Windows Mobile days with that Marketplace [Flashback: May, 2009!], you can only install an application on five devices under your Live ID. Anymore than that and you had to login to the Marketplace and literally de-register some phones. This was done to prevent piracy by people just giving out their Live ID and having like 10 people all using the same apps. Well, the same rule applies to Windows Phone 7--if you are lucky enough to have six phones, you'll have to re-purchase apps for one of them--sorry!
This is all spelled out in the Microsoft official knowledge base article on downloads and installations, found here.
Is there a limit to how many devices I can download to?
Yes. According to the licensing terms, customers are allowed to download an application to 5 phones at a time that use the same Windows Live ID.
So put down your pitchforks, take a deep breath and we'll probably have to revisit this topic with Windows Phone 8, won't we?