We’ve added a limit on the number of items in a folder in the inventory: folders can now contain at most 1,000 items. (This number includes both real items and subfolders.) This limit was added because the viewers load the avatar’s entire inventory when they start, and loading very large folders can cause a slowdown for both the incoming avatar and other users.
To be precise, the limit isn’t really on the size of the folder, but on the number of items that we return to the viewer. So folders can still have more than 1,000 items, but viewers will only show the first 1,000. This means that users who have folders that currently contain more than 1,000 items still have all of their items; they just aren’t shown. This can be easily fixed by moving the first 1,000 items into a subfolder, at which time the next 1,000 will appear in the first folder.
By the way, this limit has always existed in Kitely Market: when you choose items to add to a product, the web-based inventory dialog shows only the first 1,000 items in each folder.