I think that was put in there to stop exsessive combo's. I don't think your doing anything wrong because I get the same result. Sorta like the Maximum Damage thing in MK4.. im assuming at least.

It is there to limit your juggle use.
Either keep your opponent on the ground as long as possible, then go into juggle and follow ups or Take a look at konqrr's vids. Shujinko rocks.

wow you got a long ways to go if you think combos are small in this game. i can pull at least 12 hitters with sindel, jade, noob-smoke, shujinko, liu kang, sub-zero, scorpion, etc. i havent even tried all oft the fighters yet so i am sure there are plenty more. try these then tell me the combo system is flawed;
sindel - start in fu jow pai 13 hits
scream, 1, 1, 1, 3, stance change, 4, 1, up + 1, 4, 4, 1
shujinko - start in mantis
spear, 1, 1, 2, back + 2, up + 4, flip kick, 1, 1, 1, stance change, 4, 4, stance change
still think the combos are flawed? pssh, try again. and look at konqrr's website for some amazing combos that take precise timing and...drum roll....skill.

You can only use a popup type move 3 times in succession. If you use a popup move, then hit with any move or set of moves, then try to do another popup, the combo ends.