In my project, I use ScrollViewer to show some long height infomation.
I use like this:
Max. texture size on WP7 is 2048x2048. The rectangle height exceeds this limit. Once you decrease it below this limit, it starts working.
This code is better suited to experiments as you can identify bottom border:
Once you increase the Border height, the bottom part will disappear.
On the other hand, I have to say that this behavior surprises me, too. I would expect that system decomposes large objects into smaller textures, but apparently WP7 designers decided not to do so, but rather manifest UI bug.