How can we increase the number of events displayed when creating Joomla menu link?
Wow, blast from the past!  I actually remember this bug:
https://issues.civicrm.org/jira/browse/CRM-8620

It should, by default, show only the upcoming events.  This may not solve your entire problem, since you may have dozens of upcoming events, but at least the past events shouldn't clutter you up: upgrading to 3.4.8 should help you.

Now, for a thousand reasons, you really should migrate to a current Joomla version and upgrade to CiviCRM 4.6.1.  That's a tall order at this point, since you've got years of deferred maintenance, but you should at the very least get yourself up to Joomla 1.5.26 and CiviCRM 3.4.8 as soon as possible.  The Joomla code is so old that it's on a "legacy" download page.  CiviCRM 3.4.8 can be downloaded from SourceForge.

It's vital to keep your system up-to-date.  Regardless of what you do about this issue or doing a point-release upgrade of CiviCRM and Joomla, you should make plans now for migrating to a new website (there's no direct upgrade path from Joomla 1.5.x) and moving and upgrading your CiviCRM database there.