The number of tags is not a problem, I probably have around 8000. But that depends also on how they are distributed in the PLC. It is better to have them packed in few DBs, if possible, otherwise the driver has to do a lot of queries to the PLC.
Maybe you should try to use a real PLC to see if you have the same problem, so the issue is not with WinLC.
I had a problem similar to your when I tried to use NetToPLCSim with more than one PLC simulated on the same PC; it seemed like the program NetToPLCSim was too slow to respond to driver requests and the communication continuously switched between good and bad. That’s why I started to use WinLC for simulations (I have used it to simulate 6 PLCs at the same time, with a more than 50k sqltags in Ignition, with no issues other than the logging).