This is a great idea. PostgreSQL has a similar feature, in that you can leave off the "precision" argument on a varchar to make it unlimited in length. We don't currently handle this properly either for round-trip engineering. You just end up with a large limit rather than truly unlimited.
With MS JDBC driver sqljdbc4.jar and SQL Server 2008, I'm getting 'ntext' columns mapped to 'varchar(1073741823)' columns. Is there any workaround to this bug -- besides using a text editor on the generated forward-engineering SQL?