Because people play more than one game. Let's say a person plays Gears of War, Halo, CoD and Battlefield. Everybody on their friends list is a person they play one of those games with. With a small limit of 100 they can only have so many people for each game. With Xbox Live they are constantly meeting people they enjoyed playing with, but in order to add them. They have to make the decision of deleting somebody. This is a person that regularly plays with everybody on their list. So chances are they're not going to delete anybody. With a larger list they don't have to worry about that.