Unfortunately this doesn't work. Picture environments (picture, tikzpicture, ...) are (horizontal) boxes on their own and LaTeX doesn't break these. You would need to do this by yourself.
If you are able to detect it once your picture is too long (longer than max. \textheight or calculate the rest of the current page) you could insert some code like <global save settings>\end{picture}\begin{picture}<restore settings> to close the current picture and open a new one. I do similar things with TikZ's \path in tikz-timing where I have to start a new path to change the colour and style but want to keep certain settings and the position. It's, however, a little tricky, especially for whole pictures, I guess.
Another possibility would be to draw the whole picture as long it turns out to be, but inside a savebox, i.e. you store it first but don't typeset it directly. Then you can measure its height (\ht\yourboxmacro) and if it is too high you can clip it using my adjustbox package. The idea would be to insert it twice: once clipped to the size of the first page and then again on the next page with the first part clipped. Using a loop you could, of course, support more than two pages.
Here some example code. I used tikzpicture here because I know its syntax but not the one of picture very well. It will work with that as well of course. (Note that there is a bug in the current version of adjustbox. I fixed it for the example image below, but the top is still clipped incorrectly. I have to have a closer look at it. However, the basic idea is sound and works.)
\documentclass{article}
\usepackage{tikz}
\usepackage{adjustbox}
\newsavebox{\mysavebox}
\newlength{\myrest}
\begin{document}
\begin{lrbox}{\mysavebox}%
\begin{tikzpicture}[red,thick]
\draw (0,0) rectangle (-.9\textwidth,-2.8\textheight);
\draw (0,0) -- (-.9\textwidth,-2.8\textheight);
\draw (-.9\textwidth,0) -- (0,-2.8\textheight);
\path (-1mm,-1mm);
\path (current bounding box.north east) +(1mm,1mm);
\end{tikzpicture}%
\end{lrbox}%
%
\ifdim\ht\mysavebox>\textheight
\setlength{\myrest}{\ht\mysavebox}%
\loop\ifdim\myrest>\textheight
\newpage\par\noindent
\clipbox{0 {\myrest-\textheight} 0 {\ht\mysavebox-\myrest}}{\usebox{\mysavebox}}%
\addtolength{\myrest}{-\textheight}%
\repeat
\newpage\par\noindent
\clipbox{0 0 0 {\ht\mysavebox-\myrest}}{\usebox{\mysavebox}}%
\else
\usebox{\mysavebox}%
\fi
\end{document}

\includegraphic’s? – Juan A. Navarro Jul 12 '11 at 10:05gincltexlets you include.texfiles like images using\includegraphics. It's code is very similar toadjustboxwhich allows direct clipping of TeX material. – Martin Scharrer Jul 12 '11 at 10:29