Actually, xargs is supposed to handle that. It will break the command line when it gets too long (1024 words, I think) and run the command again.

But the most annoying thing with xargs is that it doesn't handle spaces or other special characters well:

server:~> ls
a file
server:~> ls | xargs rm
a: No such file or directory
file: No such file or directory
[download]

You're forced to do tricks with sed (or perl -e) to get this to work.