Scalability issue when using outgoing asynchronous web requests on IIS 7.5
A bit of a long description below, but it is a quite tricky problem. I have tried to cover what we do know about the problem in order to narrow down the search. The question is more of an ongoing investigation than a single-question based one but I think it may help others as well. But please add information in comments or correct me if you think I am wrong about some assumptions below.
UPDATE 19/2, 2013: We have cleared some question marks in this and I have a theory of what the main problem is which I'll update below. Not ready to write a "solved" response to it yet though.
Answer
I have implemented a reverse proxy through an Async Http Handler for benchmarking purposes (as a part of my Phd. Thesis) and run into the very same problems as you.
In order to scale it is mandatory to have processModel set to false and fine tune the thread pools. I have found that, contrary to what the documentation regarding processModel defaults says, many of the thread pools are not properly configured when processModel is set to true. The maxConnection setting it is also important as it limits your scalability if the limit is set too low. See http://support.microsoft.com/default.aspx?scid=kb;en-us;821268
Regarding your app running out of ports because of the TIME_WAIT delay on the socket, I have also faced the same problem because I was injecting traffic from a limited set of machines with more than 64k requests in 240 seconds. I lowered the TIME_WAIT to 30 seconds without any problems.
I also mistakenly reused a proxy object to a Web Services endpoint in several threads. Although the proxy doesn't have any state, I found that the GC had a lot of problems collecting the memory associated with its internal buffers (String [] instances) and that caused my app to run out of memory.
Some interesting performance counters that you should monitor are the ones related to Queued requests, requests in execution and request time under the ASP.NET apps category. If you see queued requests or that the execution time is low but the clients see long request times, then you have some sort of contention in your server. Also monitor counters under the LocksAndThreads category looking for contention.