The content of a drop down reference selector is indeed limited to 1000 items. That is because Internet Explorer freezes or even crashes when adding a large number of items to a drop down. You should see an exception when the number of items exceeds the maximum of 1000 items. (It might be a better idea to replace a drop down with a select form when this happens, because you can not always predict how many items will be shown.)
The reference selector should not clear its value if the selected value is not in the set due to this limitation, so this is indeed a bug. Could you file a ticket for this?
I believe there is a maximum number on the results shown in a dropdown menu of 250.
The other behavior, where a saved reference does not show up if it does not match the constraint is not something I would call a bug: if the object you are referencing does not show up due to a constraint, this is the behavior I would expect. Sometimes, it is annoying though, but I use the following work arounds: