I finally figured out why this is happens. If you have a small VPN like i 
do (tinyvpn on ipxcore, 96MB ram), the thread size (8MB) will cause a very 
small amount of threads to be allowed. 

To fix this, enter the command below:

ulimit -s 1024

http://www.alak.cc/2011/11/python-threaderror-cant-start-new.html 
http://adywicaksono.wordpress.com/2007/07/10/i-can-not-create-more-than-255-threads-on-linux-what-is-the-solutions/
 

Related error message:

File "/usr/lib/python2.6/threading.py", line 474, in start
    _start_new_thread(self.__bootstrap, ())
thread.error: can't start new thread

Hope this helps someone in the future trying to run this great web 
framework on a minimal server!

On Thursday, December 22, 2011 5:28:19 PM UTC-10, Cody M wrote:
>
> I'm getting this error with the latest version of web2py as well. Which is 
> confusing, since all the web2py's I've used before the most recent version 
> has 
> worked fine.
>
>
>

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