Linux can use multiple moniotrs. I have seen a 16 monitor setup before. It all depends on the hardware video card you use and the module support for its features. Nvidia seems to be the best for multiple monitors and can again depend on the cards and what are supportted under them. the display I seen with 16 monitors were using nvidia cards. They had upper half 2x2 format for a total of 4 monitors spanning a KDE desktop and another gnome desktop. A few spanning some vmware Windows guest and some just plain text console screens. One showing what was going on. All connected to a single quad xeon system.
Distribution: RHEL 5.1 with Pieces of this and that.
Kernel 126.96.36.199, KDE 3.5.8 and KDE 4.0 beta, Plus Development src.rpm, ATI fglrx64_7_1_0-8.433-1 rpm with 3D and DRI working.
Acer 5100-5840 with webcam, ati, sdcard reader, sound, atheros based wireless, all working. Only thing not working is the memory stick reader.