Two words: Halo 2. Halo 2 is why Microsoft hasn't killed the old Xbox Live, according to G4. And the old Xbox Live architecture can't support more than 100 friends.
In order to add in support for more than 100 friends on the Xbox 360, Microsoft has to ditch the old Xbox Live setup first, and they're not sure when they're going to pull the plug on Halo 2. So if you want more friends on Xbox Live (like so many of us do), you need to tell the friends you already have to stop playing Halo 2 and move on up to Halo 3—or you know, an actually good FPS, like Call of Duty 4. Yeah, I went there. [G4 via Kotaku]