Hey there Namelezz! Great to see that this project is still alive. I remember the first sword slashing videos. And what I see in the cap looks great!
As for your problem: all you do right now for scrolling is center view on the Hero sprite?!?!. If you just clamp the Y position of the camera to a certain position you'd have a really simple solution. Also I'd strongly suggest you start using the Advanced Camera plugin for this. It's really a great and incredibly useful plugin!
For a quick test I threw advanced camera in your cap and clamped it at 900 max. Looks like this:
<img src="http://dl.dropbox.com/u/2306601/900clamp.png">
I'll have a look at the sword thing you mentioned too, but as your cap is pretty complex it may take me a moment.