I have tested about 3000 songs on ipad 1 (I think I have had it up to 3800.) Basically the songs are 'text' files in our proprietary format so are quite small. It will take a little longer to launch initially with more songs and playlists but otherwise should remain responsive (swiping, search, playback etc.)
You might need to use Search more in order to locate a song (rather than trying to swipe through the song index) but you can set up specific playlists for organization.