The limit could easily be increased to 32767 sprites, but the problem is that the AGS Engine internally uses a 16-bit int in various places when dealing with sprite numbers. So to raise it higher than that or remove it completely, would require the engine to be changed to use 32-bit ints for sprite numbers.
So basically, yes it can be done, but it's a non-trivial change.
So basically, yes it can be done, but it's a non-trivial change.