It's an iPhone limitation. We have just tested with 2 iPhones, different emaill accounts.
It seems to be the same as the problem we had with a HTC Advantage X7510 or active sync about a year or so ago.
The X7510 claimed to be able to sync completely with Exchange - I emailed HTC to confirm and they said yes. However, any folder with more than 1000 items in it seems to cause problems and we ended up having to hard reset the device.
I complained to HTC to no avail. And on the various forums, the answer was - use a laptop.
So the iPhone (3G anyway) has the same faults.
Roll on the Nokia N900. Let's see what a 4GB mailbox + can do to that.
http://forum.xda-developers.com/archive/index.php/t-450633.html
Hmm, just realised someone at the end of my post suggested an iPhone.
Bad move.
Laptop.