Well, I don't think we've ever tested with more than 256 players so there really might be some bug in the code that keeps us from hitting that limit. Though if there is, I haven't found it yet!
Anyway, lags are often caused by server maintenance work going on so don't take it to mean our code can't cope with any load. And there is a point to this project being opensource, anyone is free to take the game client or game server and modify it into a private game even though we discourage it. Anyone can also contribute fixes or new features to the client/server too, use the code as a research project or as a base for a whole different kind of project, such as a mmorpg on the wii.