Minecraft adds Ordnance Survey Great Britain terrain data
bbc.co.uk
bbc.co.uk
I saw a video from one modder who managed to, not remove, but rotate the height limitation, producing a cavern world that was 256 meters wide and infinitely long and deep. He tweaked the terrain generator to accomodate it, too; there was no surface, just uncountable miles of vast tunnels. It was creepy.
“Although this exaggerates the real-world height, it preserves low-lying coastal features such as Bournemouth's cliffs, adding interest to the landscape.”
- http://www.pcgamesn.com/minecraft/ordnance-survey-recreate-g...
So they are keeping to the 256 block height, but being slightly creative with the vertical scale...
I'm pretty sure what you're thinking about did happen: the height limit used to be 128 and when Notch added some code, it made for a (relatively) big improvement to 256.