I have 4644 tracks on my Samsung Focus 39.6-gb install, and still have 8.08gb of "available storage" per the phone About screen, and 7.2 "FREE" per the Zune Phone screen -not sure nor worried about the differing opinions. About 90 percent of my collection consists of 192kpps-ZunePass downloads, and I only have about 50 photos and 50 apps loaded/installed.
I haven't noticed any "lag" as my collection has grown, but I started with >3000 tracks right after I installed the 32gb card the first week I got the phone in August.
Disclaimer: I am not speed-Focused -pun intended; so if my apps open in 1 second instead of .5, I probably wouldn't notice.
The OS should only render small portions of the current list of the time. That technique will eliminate the possibility of encountering lag simply because the list is too long.
I have 2.51Gb of music which equates to 341 songs on my titan with all the apps i need installed (including Navigon which is 2.5Gb) I still have 4.47 Gb free and get no lag whatsoever