I have routinely worked with 8 dynamic lights. So there is defitively not a general limit of 4. However, there are other possible limitations, both hardware and software that can limit the number of dynamic lights that can be active at any one time. Your graphics card from what I can see should easily handle 8, but I'm not sure if the Commercial 3DGS7 is has a limitation as to how many dynamic lights that can be handled by the engine. Also, your default engine setting might be 4 lights. You can make sure that 8 light are allowed by adding the code:

max_lights = 8;

somewhere in your startup code.

Also, you might already have tried this, but make sure each light has its own action that controls its dynamic behavior. I never trust the WED settings only to handle dynamic lights. I might be wrong on this, but I always give each dynamic light its own action.

You mention a z limit position to get normal light behavior. This seems really odd. Not sure what to make of that. Do you have a geometry box around your World? That might help to get beyond that limit.

All in all there seems to be more than one problem issue going on here.

These are just a few suggestions, I hope they will help...

edit: just thought of another thing ... try turning off the sun while working with other lights. Done be adding the code:

sun_light = 0;