In my experience (15 years @ insurance megacorp), there is nothing wrong with taking a shot and not getting a position from time to time. If anything, it puts people on notice that you are looking for bigger and better things and you get the experience of going through the interview and opening up relationships with people in other parts of the company.
But you do want to be thoughtful about it, while not getting a job isn't the end of the world, you are correct that stacking up 3 or 4 rejections could start to be an issue over time (both in the perception of others and in your own confidence). I think you are on the right track by reaching out beforehand. A good hiring manager should be completely honest here and not allow you to interview for a job you have no shot at. If you don't get the position, but it's still your end goal, make sure to ask for feedback in terms of what you can do to get there. Stay in touch with the hiring manager, if your company does development plans make sure that type of work is on there. Then the next time a position opens up, they may already be thinking of you.
Good luck!