I generated a "double-thick Custom Nether" just fine at 8 World Height Bits. As a down side, 1) it wasn't current with Magma Blocks, I had to cobble that together, and 2) it was ugly, and at the level 128 area it always had a solid floor. If I had time, I would have gotten more into the TC config, altered the biome file to have it work properly. I could have put the magma blocks in and had "Lava Ocean" at level 63, or done something else "interesting". But I was out of time and I really needed to get something done, so I simply used Vanilla. I also found the level 128 "gate search limit" was still in effect, and it would be confusing. But mostly, I didn't care for my "hack nether" compared to the real thing with magma block placement and other natural effects.
I don't think the "level 128 portal search limit" issue is going to stop anyone from making an awesome Nether at 8 bits. But I do think if TC had access to that portal limit to make it 8 bits, it would be a good fit for what TC is supposed to do. Or perhaps an "add-on" plugin for just exactly that purpose, but separate for inclusion if desired.