How on earth have you had iTerm use up so much memory it's given you an error? I've been using iTerm for years on some absolute crap machines, abusing iTerm with tmux and numerous customizations, and have never received that error.
The parent ran out of memory with iTerm not because of the infinite scrolling buffer but because of iTerm having memory leaks. The memory leaks in iTerm used to be a big issue, and it appears they still have not fully fixed. Other terminal apps can swell up to over 1Gb of the RSS, yet they do not crash. Provided there is sufficient RAM available, the inifinte scrolling can prove to be benefecial.