AFAIK, it doesn't permamently block the host. In order to do that, you would have to enter the host's IP in the filter hosts list in the limewire options under filter/hosts.

When you're connected to only 3 hosts, that means you are running as a leaf, which is perfectly ok. You can only allow ultrapeer in the options, this doesn't mean limewire has to run as an ultrapeer. Whether limewire runs as an ultrapeer or a leaf depends on factors like the quality of your internet connections and others.

IMO, there doesn't seem to be much of an advantage to running as an ultrapeer. It doesn't provide substantially better search results and as ultrapeer, limewire spends bandwidth and cpu % for routing limewire messages.