Hi let me tell you what i have experienced and you can say if im right or wrong. I launched a new test site in march 1st and submitted a sitemap.xml to google webmaster tool, the sitemap cointained 50.000 links which i think is the maximum google reads from an xml file, then one month later in the 1st of april i went to google and typed "site:thepeoplesdictionary.com"(my test site) to see how many pages google had indexed and the results were slightly above 50.000 and i thought cool lets submit more sitemaps with 50.000 links in them, so i submitted 20 sitemaps with a total of 1.000.000 links and then one week later or so i had just a couple of thousand links and now about 300 when i do the search. Maybe the numbers can be deceiving and whether it is 50.000 or 500 might not mean that much of a difference. I think having 1 sitemap.xml file with a maximum of 50.000 links(max 5mb) is a good idea, and then once a week or every second week change the links in the sitemap,. So this is the new strategy i will put up and then we will see what happends, i think google penalized the site when i had so many links.
Interesting Read. The sites I've dealt with have all been small enough and easy enough to deal with that I've never had to submit a Sitemap. Any issue that has come up has been easily handled on the site. I've always assumed taking care of the issue on site was the better approach or at least made submitting a Sitemap unnecessary. And I want to slap my forehead and say d'oh, of course that makes sense. Seems so obvious after it's pointed out doesn't it? I personally think this might help temporarily, but it can hide the fact that there's a much bigger and more permanent problem and I want to know about those problems more than the temporary ones. So let me know later when you finish your test.
I do not think this is the sitemap problem anyway. If you have experienced with GWT then you may know that update in GWT is always delay and the indexed pages could be fluctuated anytime regardless to number of sitemap you had submitted.