This is the same issue that many Clarion aftermarket HUs have as well. No shock that the Clarion-made OEM unit also has the 255-song limit.
Clarion customer service says no fix on the aftermarket units. Same deal on the iPod being fully compatible. That was their "solution" when I called customer care. Crutchfield (where I bought my HU) gave the same weak answer about the USB file limit.