Playerlist not functioning properly?

You don't need to be checking how many players there are, you can just iterate through the labels and set the text of that label to the name of that player (or blank if there are no more players.)

local frame = script.Parent
local labels = {}
for i = 1, game.Players.MaxPlayers do
	labels[i] = frame:WaitForChild("Player"..i)
end
local players=game.Players:GetPlayers()
for number = 1, #labels do
	labels[number].Text = tostring(players[number] or "")
end

edit: If you want it to update whenever a player joins/leaves, connect it to PlayerAdded and PlayerRemoving:

local frame = script.Parent
local labels = {}
for i = 1, game.Players.MaxPlayers do
	labels[i] = frame:WaitForChild("Player"..i)
end
function update()
	local players=game.Players:GetPlayers()
	for number = 1, #labels do
		labels[number].Text = tostring(players[number] or "")
	end
end
game.Players.PlayerAdded:connect(update)
game.Players.PlayerRemoving:connect(update)
update()