For a research project we are trying to boot a very large amount of tiny, custom built VM's on KVM/ubuntu. The maximum VM-count achieved was 1000, but with substantial slowness, and eventually kernel failure, while the cpu/memory loads were nowhere near limits. Where is the likely bottleneck? Any solutions, workarounds, hacks or dirty tricks?

A few more details here (tumbleweed question), and the possibility of an upvote:

Any tips would be much appreciated!