Server Error 500 when changing pager of Views to display all items
Answering your last statement displaying multiple nodes at once is totally possible in Drupal. (Bear in mind though the power of hosting and caching is something to consider.) Unfortunately, the 500 error isn't helping a lot; a good approach is checking the error logs for any indications there.

If you are suspecting a PHP memory allocation error, try increasing the memory_limit variable in php.ini to a higher value. This link might be helpful.

Displaying thousands of nodes at once needs caching, so your site can be nice and quick. First, enable the caching in the advanced section of your View UI. Also consider using modules like memcache and boost.

As I said, first check what this 500 error you are getting is, because maybe it has nothing to do with the amount of nodes you are displaying.