The setLimit() function does not appear to be working. See one other report at http://stackoverflow.com/questions/12768647/joomla-database-how-to-use-limit-in-getquery#comment37333579_12769295.

To verify, you can download and install https://github.com/Joomla-Ajax-Interface/Ajax-Latest-Articles/archive/875f1f4348b1e856539360dea4317097689db2c7.zip, which uses setLimit() to limit the number of articles returned. Once installed and enabled, point your browser to ?option=com_ajax&plugin=latestarticles&format=debug and you'll see all articles returned.

Then, install https://github.com/Joomla-Ajax-Interface/Ajax-Latest-Articles/archive/master.zip which uses the second and third parameters of setQuery() to limit the response. Browse to ?option=com_ajax&plugin=latestarticles&format=debug and see the response length change.