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I guess you have a crappy connection or something/
There was an article on this technology a couple of months back. Your client doesn't load all 256 players at once. You only load a certain threshold (say 25) within a certain visual range. When others come into your range your client will then render them. The AI "emulates" the other players in the background so while you're only rendering X other players you still get the sense that you're in a game with 256 others.
Just a theory. And I hope it works. I really do.
256 players in liberty city, would've worked well
I remember speaking with one of the professors at my school who was in the industry - and he told me of some new way to incorporate gratuitous amounts of players with ease. (Probably something similar to what tek said above ^^