I think the message tree was stored in its entirety assuming it wasn't too big. But each of these messages was significantly smaller than the memory footprint of the DOM element in which they would have been displayed. The efficiency of putting new content into a DOM element at the bottom of the list (below the visible content) and reordering it within the parent (so it was at the top was significantly faster than deleting that bottom DOM element and adding a new child element at the top.

Give me a few minutes and I might be able to find the Google I/O talk where this was described ... Wave used GWT to generate its Javascript but it's a great technique for browser-based clients regardless of how you end up with your Javascript.

The method of "recycling" DOM elements is described in minutes 20-25 of this video: https://www.youtube.com/watch?v=T_CLzgEL7FA. I can't find the reference, but I also remember hearing that they used some preloading to make other operations on the screen react much faster (e.g. loading the first 25 messages for each wave headline in the list).