It took me a while but I have found a solution after changing settings at my webhost did not fix it.
Subscribe2 provides a facility to work around a restriction of the maximum number of recipients per email by sending batches of emails. To enable this feature, go to Subscribe2->Settings and locate the setting to restrict the number of recipients per email. If this is set to 30 then each outgoing email notification will only contain addresses for 30 recipients.
This post is both an announcement an a test to verify that it is working. Do let me know if you received the email for this.