I was told that "Microsoft has an upper practical limit of around 200 to 250 printers on one server before things start to become unstable". Is it true?
Our server includes win2003 and win2008.
Your biggest problems with a print server with that many queues will related to poorly written drivers. Badly written kernel-mode drivers (of the NT 4.0 era) can take down the entire machine. Badly written user-mode drivers can crash the spooler subsystem (spoolsv.exe) but won't, typically, take down the entire box (though handle or memory leaks in user mode drivers can still affect system stability).
You may also have problems with disk space exhaustion if you're leaving the default spool folder on an OS volume without a lot of free space. Some print jobs can generate very large spool files (I've seen spool files larger than 2GB before).
Clean up jobs jammed in the queues with regularity, too. Don't allow a bunch of old "jammed" documents to pile up. The impact of these "jammed" documents isn't horrible, but there no sense it wasting system resources on documents that will never print. Timely removal of printer queues that are no longer functional is a good thing to help with this.
If you're sticking with Standard TCP/IP ports, default print processor (when printers don't absolutely require a proprietary print processor), reasonably bug-free printer drivers, and have enough free disk space on the volume where the spool is kept you should be fine.
No there is no hard limit, and I've seen that many on a standard server, although it was properly managed.
Each version of Windows Server becomes better at handling high numbers of print queues. When you get to hundreds of printers I'd recommend x64 Server 2008 (at least) where they significantly changed the print subsystem. 2008 also has better management tools. You will also want to take care to standardize your print drivers (so you don't end up with many versions of the same driver).
The most important thing is to ensure you keep the winprint Print Processor (google it) in place rather then the 3rd party ones many print drivers throw in. Rarely do you need the 3rd party ones. I've seen print admins create scripts that they run after each driver install to swap out the Print Processor automatically.
Yes, the Server can get unstabble.
Maybe this hotfix helps you.