I think it's because of limited entity spawn.
People make big sheep farm's for unlimited supply of wool. They breed them, but don't kill.
The more sheep the better for you, yes? And other people do the same.
But now think about it this way:
Because of that mobs will stop spawning. Why? Because the server have a limit of spawning monster's and farm animal's.
I don't remember it happening on here. But I did see it happen on other server's.
It's nothing to do with limited entity spawn. You can set the passive limit on any chunk to stop massive farms, the limit being 16/chunk I was told (by a member of staff), yet my sheep start to vanish in a chunk that only has 2 sheep. I'm under an ocean to cut the spawning of other passive mobs and the farm is in my town, with hostile mobs turned off. This can't be right. I build dirigibles and they can take 10's of thousands of wool blocks, but obviously not on this server.