Dear Michelle,
Every product, which use standard Microsoft ActiveX Tree control have this limitation. It comes because Microsoft set variable defining numbers of nodes to be (unsigned short) integer. That's why max # is 65535.
I didn't think that will be very profitable to develop new control.
For my regret we can not use Tree class of new VS.Net. It is not compatible with VFP7.0. I hope that with help of some Microsoft authorities we will solve this problem.