Memory issues/storage server Management crashing after enableing quotas

[Christopher F. Wilson]

We are having a major issue after installing quotas on our storage server.

Server is DL585 g2 storage server with 2 msa60 drive arrays. 9x750gb per msa60 in Raid6(ADG)
server has 4gb memory

on one of the volumes they disk is layed out as this:

\USER\A
\USER\B
\USER\...
\USER\Z

and in A\B\C etc there are a total of ~ 40000 users home directorys that I assigned a quota to. After doing this, HP storage Server Management would crash anytime the system was rebooted, A service listed as svchost.exe would use all physical memory that was available as well as 8GB of swap. Cant even remove the quotas as if I force the hp management service to restart and go to the quotas page it will eventualy run out of memory before it would let me remove any of the quotas.
is there any way of fixing this short of having to rebuild the server?