only start reading if you like to read long long pieces of text:

well to start off, i am starting a discussion on breaking the height limit, it has already gone from 128 to 256 and seeing how bits work the logical step seems 512 right?

well no, i would love to see an infinite world that is really infinite and not just horizontal... and theoretically it could be done easily (well actually not that easily) to, just needs some coding.

generating higher worlds could be like the horizontal generation but then also vertically, the only thing that needs to be done is instead of extending the current chunks, chop them in pieces and stack them:

currently chunks are rectangular blocks of 16x16x256 loaded next to each other in a certain cylindrical area around you which makes it possible to go infinite horizontally since not all chunks are loading, loaded and kept loaded at the same time, if you make these chunks for lets say 16x16x16, or 16x16x32, or 16x16x64 and stack em on top of each other both downwards as upwards, you could go infinitely horizontally as well as vertically, chunks get smaller but more numerous but since currently your PC only loads a certain amount of chunks around you, the load wouldn't be different.

but instead of a cylindrical loaded area of chunks sized 16x16x256 you would have a smaller spherical or square (whichever one is easiest to compute/code) chunks loaded area sized 16x16x16/32/64 around you.

your computer keeps the same load on it as it is now just the saves would get bigger since every chunk square you go down/up would add a bit of extra info, same goes for horizontal as it is now, on top of that most chunks aren't even that memory intensive unless a player starts doing funky stuff on it.

world generation could be like(imagine the middle of the world being 0, or whats currently 64) at 0, level generation is as it is now normal land, going from 0 to +x just adds chunks filled with air, after a certain amount of upward chunks, say 30 you could have a new generation of landscape... sky-lands.... same goes for going down... after traveling -x from 0 lets also say about 30 chunks you could have the generator change from regular land to nether generation, this would also solve having to build portals to a separate world file... portals would still be used as they are used now, just in one single world (somewhat like the ancient-gates plugin for bukkit but without putting in codes)

is this really this hard to code (just asking)?
step 1: splitting chunks to easy manageable pieces/chunks (not that hard)
step 2a: stacking them on top of each other when/while going up (not that hard)
step 2b: altering the world saving method so it memorizes up-going vertical chunk locations together with horizontal locations. (hard)
step 3a: stacking them underneath of each other when/while going down (not that hard)
step 3b: altering the world saving method so it memorizes down-going vertical chunk locations together with horizontal locations. (hard)
step 4: adjust the world generation to generate different types of biomes at certain heights (example):

space.... aka void layer... aka air blocks which will kill you since void is not possible...
the layers where the end world is located... enderman and their little moon :P
air layers ... nothing here but air.
sky-dwelling islands... aka sky-land as notch's first attempt at it.
air layers ... nothing here but air.
normal land generating layers...
some more normal underground land generating layers, with gigantic caves perhaps.
even more digging layers....
nether generating layers....
lava generating layers to simulate a planet core which will kill you.

in principle a player could set max depth and max height and at those heights/depth you either find lava or killing void to end going up or down its up to the player to decide the altitude....

inspiration needed? cubic chunks mod and mineup... outdated but very interesting:
www.minecraftforum.net/topic/437213-worlds-how-to-have-higher-deeper-worlds

i hope someone understands this, it requires a rewrite of the world generation, detection and saving methods and thats it. (no i am not a coder but i do know how stuff works... just cant code it) i hope this brings someone to thought.

EDIT:

idea from: Xistence
flag empty or solely air (perhaps water to?) filled chunks for a decreased load, only to be loaded when a player enters the chunk.

idea from: Randomness3333
underworld to nether border: add an extra layer off obsidian in between to prevent to easy acces, must blend in as though if it were natural so not a completly solid x thick plaque

idea from... me:
6 stage world generation being nether, underworld, overworld, skylands, empty air and end. seamlessly integrating into each other at border areas (just a random blend of both generators) allowing for more precise, good looking and stable world generation.