Nothing wrong with seven or eight story neighbourhoods, or any particular height in context. But there's really no upwards limit as long as you're willing to go down deep enough to get something solid enough to put your foundations on.If it is fill that probably means that buildings can't be more than seven or eight stories tall. Perhaps the best use is to turn it into a landscaped lakefront park?
"Best use" is of course subjective. My friend at WFT has failed to convince me that business/residential/public mixed-use is best as consistently as I have failed to convince him that we can never have too much shoreline parkland. The debate goes on, cities work that way.