The menu does not support scrolling, and, as you guessed, the sub-menu size is relatively limited to the screen height. If you need to show so many items, a menu isn't the optimal component to do that -- navigating through such a list requires dexterity and will trump user experience. To resolve this, either split the items in several submenus, or use a more static component, like the treeview or the panelbar.
All the best,
the Telerik team
Join us on our journey to create the world's most complete HTML 5 UI Framework - download Kendo UI