Handling 1000 transactions per second for 10 active users (SatoshiDice) and handling 1000 tx/sec for 100000 active users are two totally different things.
The latter grows the infrastructure, the former overloads it.
Thanks Luke-Jr for taking the time to explain it to people. Bitcoin can scale up, but it's quite expensive! Expensive as in not just hardware and bandwidth, but also network decentralization and availability to enthusiasts.
Let's say you're a bitcoin enthusiast and you want to run a full node. Will you spend $1,000 just to service Satoshi Dice? No way! Will you spend $10,000 to be part of a world changing global money system? HELL YEAH!
Bitcoin will scale up, but it would be best if it kept small until there is actual user demand who want to transfer value. Sathosi Dice are mostly bots and they mostly transfer information, not value.