It's unrelated to gotos in a state machine.
Having a stack per coroutine is not a big deal, especially if the coroutine library regularly advises the kernel on the memory areas it isn't using (madvise).
What's stored on the stack usually needs to be stored somewhere else and ends up using a similar account of memory.
When you allocate a 1MB stack per coroutine, the kernel will not wire it all to ram, but only the pages that have been touched. When the stack shrinks back and the coroutine yields, the scheduler can call madvise and inform the kernel that the no longer used pages from the 1MB can be reclaimed.
I don't know how to feel about Protothreads. It's just syntatic sugar for using a state-machine to provide continuations. You're also not allowed to carry state over between continuations (although I can see how you can extend it to carry-over some struct of data or something). This greatly diminishes the usefulness of Protothreads.. so it feels more like a fun proof-of-concept.
Are there any popular/real-world use cases of Protothreads?
I've never used Protothreads before, but Contiki (the tiny operating system written by the same person) uses them for its process implementation.
Similar technique is also used by Putty as well: http://www.chiark.greenend.org.uk/~sgtatham/coroutines.html