I've successfully created a number of compiled audiences in MOSS 2007
SP1 all of which have less than a thousand members. When I did the
same with another audience that has much more than a thousand members,
MOSS returns with zero members and no errors.

I'm aware that I need to import the profiles before compiling
audiences which I have done. I've also waiting long enough to ensure
that AD changes are propagated to all domains.

I've created an AD universal security group (and not a distribution
list). Then I selected 'Domain Users' group and added as 'member of'
the universal group. I then did the same with two other sub-domain
'Domain Users' groups so that the universal group has as members the
three 'Domain Users' groups. I then used that universal group in MOSS
Audience rule.

It seems as though MOSS cannot handle large AD groups, is that so?