What's the maximum time an interrupt service routine can take to execute on ATmega328P?
If nothing else is running in the MCU, then you are free to take as long as you like in the ISR. But, this is a bad habit to get into, and it means that if you want to do anything else, you'll likely have to rework the code.
A particular case is if the MCU is using a serial library, that expects interrupts to be working often enough to service individual characters received. At 115,200 baud (a high serial speed often used to minimise download time), there is less than 100 µs between characters. If you block the interrupts for longer than that, you risk losing input characters.
As a general rule, do the absolute minimum in an ISR. In your application, a reasonable design would be to have an interrupt every ms, which increments and checks a counter value. I'm sure you can work out some suitable logic to set and test the counter to get 200 ms between turn on and turn off events.
In the worst case, an ISR can run until the next interrupt of the same type occurs again.
But in general, it's poor design practice to spend more time in an ISR than absolutely necessary, because it prevents all other code from running at all. This is a big issue for anything other than trivial programs.
While the practice is to allocate the minimum possible execution cycles inside an interruption, and beside other general hardware specifications, there are not technical limitations for increasing them, if there are not any other interruption to be executed.
At attachInterrupt() Arduino Reference:
Generally, an ISR should be as short and fast as possible. If your sketch uses multiple ISRs, only one can run at a time, other interrupts will be executed after the current one finishes in an order that depends on the priority they have. millis() relies on interrupts to count, so it will never increment inside an ISR. Since delay() requires interrupts to work, it will not work if called inside an ISR. micros() works initially but will start behaving erratically after 1-2 ms. delayMicroseconds() does not use any counter, so it will work as normal.
Having 25 possible interruptions in this processor family, it is encouraged to deal with them like punctual events, for allowing other interruptions to happen.