I have heard of an agressive expansion like that in Colonia but not sure if the losing faction has to retreat.
The losing faction *should* retreat, but for the ones completed so far in 3.3 this has been broken. There's another one just started so we'll see in a week if that's fixed yet.
But there is systems with 8+ in the bubble with no problems
This can occur for several reasons.
1) If the invasion conflict ends in a draw, both stay.
2) When they were dealing with the PMF request backlog, they allowed addition of new PMFs to systems which already had 7 factions (I haven't checked if this is still allowed).
3) Expansion used to work differently and some bubble systems still have 8+ factions left over from that time.
4) Non-influence factions (e.g. engineers, pilots federation) don't count towards the soft limit of 7 anyway.