I'm not terribly hip on restrictions that don't have good reasons to be there. Also, I want to make the distinction between players, factions and teams. The player is a person (or AI) that controls a faction. A faction has a starting point on the map, a faction color, starting units, etc. Finally, one or more factions can be on the same team, share visibility and win or loose together. So the idea is that one or more players can control a faction (but I'm keeping a limit for one AI player per faction because allowing more than AI to control a faction wouldn't make sense at all right now). I've proposed a maximum of 16 starting points on the new map format, and thus, a max of 16 factions. Probably, a hard limit of 16 players is reasonable, but not completely necessary. The max number of factions is very important in a vast number of places in the code and file formats (like the saved game format). But the max number of players doesn't really have much significance there and the max number of teams has even less significance. Thus, I propose leaving max teams unrestricted and max players something stupidly high like 16 or 32. Please keep in mind that the reason I like a max of 16 map slots (and thus, factions) isn't because I think I'll be playing a game with 16 factions in it, but because I can see 8 being too little and most places where the number of factions matter are bitfields, so keeping it on a 8-bit boundary makes it simpler (I'm thinking of the saved game and explored areas data right now).
As far as bandwidth, that's something we'll have to evaluate when we get there. GAE's network protocol still uses great gobs of zlib-compressed XML (without using pre-built dictionaries) so it doesn't speak well for how much bandwidth is really needed.
However, you've helped me to capture a requirement that I've missed before and that's team/faction colors. At current, doesn't each faction have its own color, even when on the same team? I'm guessing there isn't a "team color" and maybe not even a need for one. But I like the idea of being able to choose your faction's color at start up, so I'm really glad this came up.