Okay, I've done a little more research and I now believe that my theory is correct.
With that in mind, I have a possible method for fixing this so you can safely use all 400 terrain slots. (Disclaimer: I haven't actually tried this.) Basically, if the x coordinates of all your steel areas are at least 56 or higher, then it'll turn out that when the bits for a steel area is interpreted by the game as a terrain piece, it will see an x-coordinate for the terrain piece that is off the right-hand level boundary. As a result, whatever that terrain piece is, it won't actually be in the level.
If the level satisfies this condition, then the fix is relatively simple, providing you have the capability to hex-edit the level (when saved in the direct-save .LVL format). Basically, the only thing left in the steel section that would be messing up the terrain is the end-of-steel-section marker, which is 4 bytes of 0. When interpreted as a terrain piece this may result in an unwanted terrain piece falling within the level boundaries. So instead, we will fill up the rest of the steel section with a repeat of one of your steel areas. That way, there will never be an end-of-steel-section marker (which is okay, the game automatically stops after reading 32 steel areas). This part can be done directly in LemEdit.
We still need to stick the end-of-terrain-section marker somewhere, otherwise the game will also interpret the level title as terrain pieces. This is where hex-editing comes into place. Specifically, we will stick the FF FF FF FF end-of-terrain-section marker in the first 4 bytes of the level title. This will result in 4 glitched characters as the first 4 characters of your title, but the game's otherwise fine. A bit of a tradeoff, but hey, the player sees the level title less often than the actual level. (It might be possible to do this directly in LemEdit too if it somehow lets you enter the ASCII character 0xFF into the title.)
If your level don't have any steel area, for this to work you'll have to make one whose x-coordinate is 56 or higher. This is not as bad as you might think. You can for example stick the steel area in the middle of water, if your level uses water. Or just stick it somewhere out of the way. Remember though the steel area cannot stray off level boundaries or you might suffer game crashes.