Our store was going through a refresh. I had wiped everything off the website and had 1 product loaded. I don't think it's got anything to do with the product limit. As Vekia notes the free cloud hosting seems to be going away. It's no longer an option if you want to create a new shop. You are given the option to download prestashop and/or "partner" with a hosting service.
As far as I am aware yes all sites created by North Americans are hosted out of Canada.
I wonder how many new customers Magento is going to get out of these screw ups and how that's going to work for their funding rounds