Yeah, the only reasons I can imagine for the limit, are ye olde PS2-limitations, and/or otherwise poorly implemented lists (PS2-limitations similarly to PlayOnline messages in that, the storage they had to consider client-side was pretty limited I guess, which nowadays shouldn't be an issue).

I'm actually not even sure if the blacklist is stored client-side. I would guess it is, but if there's also a network related aspect to it, that could play into the issue as well (though similarly something that shouldn't be an issue these days).

Depending on how the filtering is actually implemented, I can quite easily imagine a larger list affecting the performance of the client/chat log itself, though I'd definitely hope that to not be the case...

Hmmm. All this makes me think of a special kind of a yell channel, a kind of a bulletin board if you will, for which players would only be able to use the auto-translator. It would definitely not make all the issues go away, but perhaps it would alleviate the problem at least a little bit.