This was determined to be a defect. This is due to caching. All data retrieved in the Object Explorer and code completion is cached. This is because when it is retrieved, we don't want to fetch it again as this takes time. Caching can be turned off, although it is not recommend.
This caching will not change the behavior of the editor writing to a temporary file after 2500 rows. There are no options for that at this time, just the F5 vs F9 options.
WORKAROUND:
From the application directory root, open the file: Templates\Insight\Default.xml. Remove all the lines looking like this.
<Include Name="COLUMNDATA" Type="Virtual" Combine="None" Sorted="Yes"/>
RESOLUTION:
This issue was fixed in Toad 3.3. The latest version of Toad can be downloaded at:
https://support.quest.com/softwaredownloads.aspx?pr=268444401&pv=4294946239
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