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Gary, welcome to the forums.
That's more a of Java runtime setting as you already seem to know. More details including what the defaults are can be found here http://www.oracle.com/technetwork/java/hotspotfaq-138619.html#threads_oom. As for whether 128k is too low, that's something that Java runtime is complaining about and is outside of what AS7 can do about.
Thanks for the quick response! I will dig through the Oracle site then.