The last couple of years, Steve has said that he's sorry he can't find a bigger venue. Perhaps that's the problem? Which venue could the conference use to support more attendees?
And then there's the problem of keeping the ratio of apple engineers constant to not lower the value of the conference (which is part simple knowledge and part direct access to Apple engineers) for attendees.
I believe they're building one in Cupertino next to the new Apple HQ:
Splitting off OS X from iOS would probably help a bit but Apple won't do it.