Very good point! Its just like cell phones, the manufacturers can make a cell phone to about the size of a nickel, the only problem with this is that the distance between our ears and mouth is not getting any shorter or our fingers to which to punch in the numbers are not getting any smaller.
Small size is not always good when it comes to picture quality. Just take a look at the large Pro Video cameras that movie and TV industries use. From Beta to DV the physical size of the camera stayed about the same in order to hold the large 3 CCD chip setup and the large Pro lenses. The SLR/DSLRs are the same way, the lens opening did not get any smaller because the physics of light did not change, you still need x amount of light to get the proper exposure.
Making a product small is good marketing tool for the stylish crowd, but for the most part its really for the benefit of the companys profits.