The maximum resolving power of a satellite with a 2.4m (8 foot) lens, at 650 km (400 miles) orbit, is 10 cm (4 inches). The Hubble is in a circular orbit so I don't see how it can do better than that. http://everything2.com/title/Spy+satellites+can%2527t+read+y... Spy satellites often use highly-elliptical orbits to swoop closer, say 320 km (200 miles) for part of their orbit.
edit OK I might have found an answer actually. Using multiple exposures from different angles, you can resolve an object as if you had a lens that spans the entire angle. https://en.wikipedia.org/wiki/Aperture_synthesis I'm sure the movable secondary lens helps with this :) I'd heard of this technique used by ground-based radio telescopes before, and according to Wikipedia, the ability to do this within the visible spectrum has become possible only recently.
Every time I read about this, I instantly wonder whether this means that I can turn my crappy consumer camera into a spy device.
We have windows that span about fifty feet in the office, and a hotel across the street; if someone left the complimentary bible in the window open to a random page, could I combine multiple exposures into an image detailed enough to read the text?
Not using that technique, since it requires that you measure the phase of the incoming light. But there are some super-resolution techniques that might double a noisy digital sensor's performance. https://en.wikipedia.org/wiki/Super-resolution Try the ClearCam iPhone app.