Apparently the REAL reason we cannot have larger friends list is that it would break Xbox Live play for Halo 2 (and other less played Xbox games). Patrick Klepek from G4 says:
The continued community support behind Halo 2 is the only reason Microsoft hasn’t ditched the lingering ancient Xbox Live architecture, a high-level Microsoft source confirmed to me late last week.
The source also says that a patch is not possible, or else they would have done it long ago. So when to move on and leave Halo 2 in the dust? That decision may be in the hands of gamers. If online play of Halo 2 continues at the level it is now, especially after the release of ODST, Microsoft may have no choice but to keep Live functioning for Halo 2. However, if it drops off, that may be the opening they need to go ahead with the bigger friends lists. So what is your priority? Is the fact we will soon have a Midship version in Halo 3 a deciding factor for you?
You are encouraged to let your voice be heard at the G4 article and in the Xbox Live forums.