I had some difficulty stitching some larger (for me) panoramas a couple of years ago, with both Photomerge and a third-party program, but I chalked it up to my old computer being underpowered. I ended up stitching smaller areas, and then stitching the results together.
I do not know the actual technical answer to your question, and I hope someone who does know can answer, as I am curious also.
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