Hi Alex, this is why looking at top may be more helpful than load. Are you maxing out on processor or ram when this happens?
Or do you have plenty of both?
If the latter, than you probably have configuration issues. When we installed Moodle on RHE, we found that both PHP and MySQL were set up to limit their use of resources. PHP was limited (IIRC) to ~12MB of RAM, and MySQL was set up to use My_tiny.cnf. We set PHP to 1GB of Ram and set MySQL to use My_huge.cnf, and have had no performance issues.
It was a while back, but when we set up 1.2 on our old G3 server (10.1) we also had to do tweaking of the defaul php and mysql installs, after which we had no problems (and we could support 30 simultaneous logins on that system).
Anyway, you may indeed have hardware issues with your via processor or RAM maxing out, top would help you identify that, and if not, then you probably are looking at configuration issues & reading up on tuning php and mysql for large amounts of users might be helpful.