The stack of a thread is created by Windows. It uses so-called guard pages to be able to detect a stack overflow. A feature that's generally available to user mode code as described in this MSDN Library article. The basic idea is that the last two pages of the stack (2 x 4096 = 8192 bytes) are reserved and any processor access to them triggers a page fault that's turned into an SEH exception, STATUS_GUARD_PAGE_VIOLATION.
This is intercepted by the kernel in the case of those pages belonging to a thread stack. It changes the protection attributes of the first of those 2 pages, thus giving the thread some emergency stack space to deal with the mishap, then re-raises a STATUS_STACK_OVERFLOW exception.
This exception is in turn intercepted by the CLR. At that point there's about 3 kilobytes of stack space left. This is, for one, not enough to run the Just-in-time compiler (JITter) to compile the code that could deal with the exception in your program, the JITter needs much more space than that. The CLR therefore cannot do anything else but rudely abort the thread. And by .NET 2.0 policy that also terminates the process.
Note how this is less of a problem in Java, it has a bytecode interpreter so there's a guarantee that executable user code can run. Or in a non-managed program written in languages like C, C++ or Delphi, code is generated at build time. It is however still a very difficult mishap to deal with, the emergency space in the stack is blown so there is no scenario where continuing to run code on the thread is safe to do. The likelihood that a program can continue operating correctly with a thread aborted at a completely random location and rather corrupted state is quite unlikely.
If there was any effort at all in considering raising an event on another thread or in removing the restriction in the winapi (the number of guard pages is not configurable) then that's either a very well-kept secret or just wasn't considered useful. I suspect the latter, don't know it for a fact.