Noticeable limits on item count were fairly common until around the mid 1990s.

FAT16 has a limit of 65460 total files. FAT32 limits 65535 files in a directory.

The RISC OS ADFS filesystem had a limit of 77 files in a directory; I used this until about 1994.

That is the part that baffles me. There might be an argument against when this becomes unsustainable (e.g. the number of bytes inside a file is actually smaller than the number of bytes the metadata associated with that file takes) but that can be solved quite intuitively by making user pay for it (essentially they should be counted towards the same usage limits, if they aren't already?).

Because even a zero byte file consumes space and if you give people the option someone will create several petabytes of zero byte files.

That isn't really true. Not only do most filesystems give you free byte counts, they also give you free inode counts, which are like number of files.

There are also limits to number of files in a directory.