Well, assuming the problem with your dictionary is indeed the number of .html files too large, you will try with k=1 (1 char prefix) instead of k=2 (current rule), as it yields the minimum number of .html possible, given the set of words in your input dictionary.
If the resulting (k=1) dictionary works, you are done. If not, then your dictionary is too big anyway.
(There is another possibility to reduce the number of .html files further: merging together groups. E.g. (using latin for simplicity): instead of having a.html, b.html, c.html, ... , z.html , in theory one can build a.html (containing a*, b*, c* words), d.html (d*, e*, f*, g*), h.html (h*, ...), etc.). But I will be surprised this will work on Kobo.)
EDIT: can you send me just the "words" file of your full dictionary by email (or send me a link to it by email)? I will use it to test that the new option produces working dictionaries. Just the "words" file, I do not need the definitions. My email is here:
http://www.albertopettarin.it/contact.html