Is it possible that feature activation will fail or will end unexpectedly (without any exceptions in ULS) when it takes too long for code to finish the job?
We have a feature which during activation is performing some analytic work on already existing list items and it runs quite long time (more than 30 minutes). I also tried to limit number of items while investigation and than feature worked perfectly. It seems like something (.net or IIS, maybe SharePoint itself) is terminating thread where code is running after some time but that's just my guess...
UPDATE Editing web.config file in 14 hive LAYOUTS directory is one way how to solve this. If you don't want to use powershell, you can also add this into inetpub web.config file among other location tags:
<httpRuntime executionTimeout="7200" />
I set it to 2 hours to be sure :)