the question is how many entities gamestudio can handle. i made a test a few years ago and it didn't seem to be a very high number. after several thousand it slowed down too much and it didn't seem to have anything to do with visibility but simply traversing all the entitites each frame. probably performance has improved in the meantime.

so i would try to do it with a huge three dimensional array with the block info and use a fixed number of entities that move with the camera and display the array data by switching textures. depending on the amount of entities the view distance would be limited.

someone could do an experiment. it shouldn't take very long to do a basic prototype.

edit:
hm... but 100x100x100 blocks is 1 million entities already. i think you can forget it. this needs some custom drawing routines like a voxel engine.