splunkd has some failure modes I'm sure for searches above some size, even if just performance issues or ungainly handling, but several hundred kilobyte searches work just fine.
The problem you're seeing is happening in splunkweb. I suspect it's some kind of quoting failure, rather than a length issue. If the exact string isn't sensitive, I'd love to reproduce and file the bug. A support ticket would be appropriate.
As a lame workaround, manually adding the search to a savedsearches.conf file will likely bypass the problem.
Yes, the problem always happens in splunk web. I think you should be able to reproduce by creating over 5000 bytes search.
And, my workaround is almost the same as what you are saying. I just new entry in create search and report, which includes the search line, also with non error search entry. I call non search
entry from search and report tab, and then paste THAT error search, which gives me what I want.