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The current Excel driver works by pulling the whole of the spreadsheet into memory before capturing it. This can mean that with large spreadsheets it is possible not to have enough heap memory allocated to perform this function. This does not normally happen if using server-side data store connections as the server normally has considerably more memory allocated to it than the client application. If you do encounter this and cannot overcome it by adjusting the relevant heap memory settings, the workaround is as as you say to save as a CSV or other text files which can be streamed in (and out).
Probably the reason that xlsx files fail where xls files succeed is that the xlsx save creates a larger file.
Edited by: MikeMatthews on Nov 6, 2012 3:20 AM