Chris,
I personally host a few domains, not at the level of an ISP but I do host some (7 domains and about a dozen additional sites, the domains have a total of about 20 users for email). Though SME isn't designed to be a hosting server, I think SME would be able to support the number of domains you mention. SME is based on a redhat distro and from what I've read, RH is the most popular Linux distribution and is used by ISP's all over the world.
You'd need a pretty substantial system to be able to efficiently serve that many sites, it would also depend on how active the sites are. Managing the network could get tedious though, there are contributed scripts that would allow you to create users and make some other tasks easier (with such a small number of domains and users, I do it manually). There are also contributions that can allow you to view overall statistics and current load via a web interface. It includes MySQL and PHP so you can host content management sites and there are several that has been adapted to work with SME.
Dave