I've recently read that MoM has a limit of 1000 units total for its world, and anymore, it starts displaying "max # of units exceeded".

Is this a problem or are there more than enough units for everyone? Does this error come up often, and is there a way to edit the max number of world units?

I've never encountered this problem myself, and I've played some lengthy, sizable games in MoM. I'm guessing it's something that tends to only come up if you really go overboard or actually try to encounter the error.

Well, let's see - at a maximum of five wizards, that's 200 units per wizard; for argument's sake let's reserve 200 units for netural towns (which you'd all have had to have left alone) and wandering monsters (which usually beeline for towns and try to kill everyone), so that's still 160 units per wizard. If you go with a nice, even split of recruited to summoned creatures, and discounted six heroes, you'd need space on the planet (which is only 50x80, times two realms, right?) for each wizard to feed seventy-four individual units, which is eight raiding parties of nine units each plus a couple more left over for fun. In addition to that, you need to arrange this all in such a way that none of these five wizards are actually fighting each other, that there's also enough mana for the summon spells (or you'll hit a food cap), that the netural cities, monster lairs and mana nodes stay unconquered...
It seems that 1,000 would be enough, if not more than, actually.