In general it's not a problem for the server but it might be for the bandwidth to a certain extent.
Mainly the problem could be with the very long user list that a client would receive when the room has 3-400 or more users inside.
Also a single public message would need to be broadcasted to all those clients generating more traffic than a normal room with 30-50 max users.
Not to mention the chaos that is created by hundreds of users in a room sending public messages
We've been thinking quite a lot on this possibility and we have a few solutions we'd like to implement in the next releases.
For example you could have one single big room where all clients are connected but they only chat in a one-on-one system, much like instant messengers like icq, msn etc...
The application could be done of a single big room with no limits where all users are connected but they don't see a user list in real time, they browse a list of registered users that is kept on a database. Each time you see a different user profile you are also told if he / she's currently online and you can immediately open a window for chatting.
Also you could create smaller rooms for 5 to 10 people for chatting in groups etc...
In order to create this type of app it would be necessary to add a new type of room where public messages and the other broadcasted messages are disabled, but you can still use all the other functions... This would help in optimizing the data traffic while allowing many thousands users in a single room
In conclusion, the server performance is not going to degrade but if you need public messages in such a big room, network performance could be affected.