There are lots of ways to accomplish what you are describing, and lots of ways to smooth out various performance difficulties. For example, when you do the daisy chain, you can use larger interfaces, such as chaining 4 10/100 switches using gigabit links. Another thing that can be done, is they can be chained using Fast EtherChannel.
The most obvious restriction is that you are taking the aggregate output of the switch and limiting it to the size of the pipe you are chaining with. If this is one of the switches in the "middle" of the chain, you are taking the aggregate output of that switch and all switches behind it as well.
In networks where there is not high usage (as far as bandwidth is concerned), this may not be a problem. You must be carefull to avoid loops and/or run spanning tree when linking switches together.
Another strategy that works well in large switch chains/meshes, is using vlans, trunking the switches using a protocol such as 802.1q or ISL, and then enabling VTP pruning. This can help ensure that unecessary traffic that does not need to go through a switch does not.
As far as practical limitations of how many switches can be linked, these just follow the normal rules of the media involved. You have distance limitations for Cat5, as well as the number of nodes, repeaters, etc. With 4 switches, you aren't even coming close to limits however.
Brian
