How to work with the MCP1702?
It's an example circuit. They could have written 35mA. 
Power dissipation is (Vin - Vout) * IL, so 285mW in this example.
So in the SOT-23 case we'd have a junction temperature rise of about
96°C. If we allow a maximum junction temperature of 125°C (the highest steady state temperature for which the characteristics are guaranteed- see table below), the
circuit would be good for an ambient up to 29°C, which isn't very
impressive. Maybe they should have written 35mA. It would be better in the other packages. SOT-89 would only rise 44°C so would be good to ambient 81°C (or higher current at a lower ambient). 


These numbers are calculated from this table: 



They may be optimistic because they assume a 4-layer board, probably with ground and power planes, so caveat emptor. Edit: Yes, it does assume 1-oz power and ground planes, so if your design is 1 or 2 layer it will not perform as well: 



If you only require brief pulses of current from the source, such that the junction does not heat excessively, the higher current rating may indeed apply, but you would have to pay attention to the transient thermal characteristics to determine if those operational conditions were acceptable.

In design it's important to make sure that all the constraints are satisfied. It's no good saying that the regulator is supplying current as specified if it shuts down a second later (and eventually fries) due to overheating.