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I still propose that you share more about the actual errors and create a ticket with Alteryx so they know about the limitation/error.
I'm not sure if the error is a result of the Python virtual environment running out of space, Jupyter notebooks, Alteryx, or somewhere in between. It also would depend on your machine, if you only have 8GB of ram then that is obviously a problem.
Yes, I am using something similar to the proposed solution in that I am batching out data to read in via separate connections. The issue is that i am trying to read the whole file into memory at once given the layout of Alteryx, unless there is a way to index connection objects that I am not aware of. I would run into the same issue if I were to do the same thing in any other Python environment-- it is simply bad practice. Normally, I would avoid this by reading the file in by line, but given that I am only able to work with the singular connection object I am not sure how to do that within Alteryx. At this point I will likely just write code in Python to do it correctly and execute it via Run Command.