Hi,
I am having the same problem. It just simply runs out of time. I deploy to a shared server and cannot change the php execution time beyond 30 seconds. On my development server increasing the execution time in php.ini works in 1.5 and 1.6.
I did find reducing the number of students resolved this so it would appear to be the execution of this loop which is taking too long (around 1500 students and 50 assigments over 4 categories)
My current attempt at a fix is to change the View grades interface to display the grades in alphabetical blocks like the participants interface.
Will keep you informed.