Cannot create directory :too many limits

Hi,

We have Red Hat Enterprise Linux Server release 5.2 (Tikanga) 64 bit server. Kernel is 2.6.18-92.el5. Partition is ext3.

We are running opennms in it, We have around 32999 files/folders in a folder. As the maximum limit reached, we are unable to create files of folder.

Which is the better option to fix the issue
1. converting ext3 to ext4 post taking a backup
or
2. Upgrading kernel or OS and then converting ext3 to ext4.

Thanks
MTC