My main issue with more colours being added is I expect it'd increase games where similar colours are chosen making it harder to tell them apart.
However, a potential solution to this could be to have an automated message that appears in the game lobby warning if players have similar colours (so people are less likely to start a game where this is the case).
At the risk of increasing an already crowded area, it could be added to the observers box similarly to how team scores are displayed, but in red text so it's noticeable.
This assumes it's possible to tell what colours have been chosen by players in the lobby.