Your cable service sounds very similar to mine. I also have 3Mbps down and 256Kbps up (if I'm lucky). I have a LMS server and I have it set to 7 people, and I run at a maxclient rate of 7500, which I believe is the max UT2004 will use as a default (not positive though, thought I read this somewhere...).
I have tried to increase it to 8 or even 9 players, and things go downhill in a hurry. Usually, all the pings go from the low hundreds to over 600 and people complain. Then 2 or 3 players bail and things settle down again.
There is a great article in the tutorial section here on Unreal Admin Page about ping, tickrate, netspeed, etc by TNSe. It is written for plain old UT, but I believe many of the principles carry over to later versions as well. At any rate, it is very helpful.
Here's the link:
http://www.unrealadmin.org/modules.p...amp;a rtid=15
If that dosen't work go to:
Tutorials,
UT then
UT - TNSe's Netspeed Tutorial (2nd from the bottom.)
I would suggest increasing your maxclient rate a little and reducing the number of players one at a time and see how things work. IMHO, it's always better to have a server with less players (5-7) and minimal lag than the alternative.
Good luck, hope this helps.