1. There are no sprite expansion facilities in hardware.
2. Yes, sprites 0 and 1 use colours 17-19, sprites 2-3 use colours 21-23, sprites 4-5 use colours 25-27 and sprites 6-7 use colours 29-31. The remaining "gaps" are transparent, unless you attach each odd and even sprite together, in which case you get 15 colours. Also if you do horizontal scrolling in hardware, you lose sprites (highest first) if your screen is at least 320 pixels wide and you start displaying it in the "normal" position.
Have a look at the sprite tricks section on codetapper.com
as there are loads of examples and explanations on there. Also google the Rom Kernal Manuals and read the sprite section.
Games like Risky Woods
and Jim Power
do horizontal multiplexing tricks aswell.