I don't know of any technical reason why it should be a problem. As you say, we have tried 5 millions objects on a pretty old server machine.
I would say that at the moment general performance of the web-client will not be great if you put >10,000 items into a single folder and try to browse into it. I guess you are looking at your own app anyway rather than our web-client for this kind of thing. There is also some integrity checking code in the repository that checks for duplicate named items etc. within a single folder that will perform slower if you put large numbers of objects into a single folder, but you can disable that if you don't need that kind of checking. As long as you design your folder structure well it shouldn't be a problem. We are looking at Limited Result Sets for the 1.3 timeframe also which may help with this kind of thing.
Thanks,
Kevin