Most everyone that uses w3t under that type of load has had to split out the database and scripts to 2 different servers. Stratics.com has anywhere from 400-500+ users online at various time but they are running under this split configuration.
You can normally tell where the bottleneck is coming from by running top and looking to see what is using the most processing time and memory. Usually this ends up being mysql because of the number of connections that need to be made to keep up with that many users.
As for config options. If you are using the latest versions you can help ease some of the load if you set the default aged threads to be displayed to a relatively low number. If you have it set to view alot of old threads then the scripts will need to read from a larger portion of the database which can contribute to slowdown under heavy useage.
