Yes more labels would be great - they are one of the few items of Metadata visible on the web server. (Still hoping someday we can display custom metadata columns using the web server.)
Even better would be if I could apply multiple labels - why limit to just one?
As to your point about using colors to quickly distinguish - that would be up to each user as to how many colors they can remember. But more importantly, if you display the whole label field (not just the color code) then the name of the label is there for reference.