> Does anyone know if it is  a setting i've missed ...

Check out the Movie tab of the Property Inspector, there's a field for
Channels if in normal view or an entry for lastChannel if in list view. This
sets the total number of sprites your movie will use (note that this number
is only editable in normal view, when in list view it is read-only).
Understand that there is still a hard limit of 1000 maximum sprites that
can't be broken so you'll have to work within that limit.

> On the same subject can you create a sprite dynamically ...

There is score recording which is generally an author-time routine that you
can use that doesn't require place-holder sprites, during recording sessions
you can build your stage and sprites as needed and then when done, save your
file. Give that a look in the docs and let us know if you have any
questions.

Cheers,
Tom Higgins - Technical Product Manager
Macromedia Director and the Shockwave Player
http://www.markme.com/thiggins/ 
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