Hi Raghu,
Check your sql box and crm box using perfmon. My guess you have a bottle neck somewhere. If your sql box is under a super heavy load, what normally takes less than 1 second to create can take over 1 minute.
There is no internal limitation on the nbr of tenants. You do have a lot of entities, but should work.
Do you have the latest patches for sql, and ur for crm ??
Alex Fagundes -
www.PowerObjects.com