From my tests 16 layers is all you need for Shenmue. The amount of layers impacts performance quite a lot. Be aware though that some transparencies like smoke or dust will look glitchy if you set it too low. I think the smoke from the pots outside Man Mo Temple only look 100% right with 32 layers. ...

Works great, I lowered the layers from 32 to 16 and it removed minor freezing in the opening. I assume lowering this value has some disadvantage though? I've been using V-Sync since the last ver. (it smoothed out the game), but I use Nvidia's adaptive V-Sync as the emulator's V-Sync warped the audio...