Practical limit for the number of databases in SQL Server?
Technically the limit of databases per instance in SQL Server is 32,767, but I doubt that you could use a SQL Server instance that has more than 2,000 databases, at that point the server would probably be not responsive.
You may be able to have close to 30,000 databases if they were all auto-closed and not being used. you can find more information about capacity limits here:
Joel has talked about this at another place (sorry, no reference handy) and said that before switching to MS SQL 2005 the management console (and the backend) had problems attaching more than 1000 or 2000 databases. It seems that 2005 and probably 2008 again improved on these numbers.
As for all performance questions are always dependent on your actual hardware and workload an can only definitely answered by local benchmarking/system monitoring.
I'd think mostly it depends on the memory limitations of the machine. SQL Server likes to keep as much cached in memory as possible, and as you add databases you reduce the amount of memory available.