They probably do have some focus testing evidence or something that certain demographics (older people and females) prefer smaller, neater electronics... I mean, why come up with that 3xDVD cases idea for the Wii otherwise?
But that said, I think they meet such size targets as a convenient bonus of their general strategy really. Throughout the generation there will never be a point where they're unable to have the smallest, cheapest console -- and with the price difference, nobody will really expect the U to do what the other consoles do anyway. Their strategy affords them that potential freedom / movement. Freedom from certain expectations, and freedom to wage price war. If you build consoles for cutting edge, you can probably find yourself in a loss leading price war, or not able to cut prices at all instead. I think they're just banking on people being skint for years to come, and hoping they're seen as the value buy.
EA and others rejecting their approach might be really damaging for them, but I think that remains to be seen. I pretty much expect that they'll all coexist just fine TBH.
