Ah I didn't play City Folk very much but the town does feel smaller to me too, I think it might also be because the towns in handhelds always feel smaller than the towns in consoles(at least from my experience with all 4 games).
No way. They just got in the way when trying to plant orchards or chase bugs or fish. I'm okay with cliffs to the beach, but if we're gonna have hilly towns, make it like in the movie, don't make it like the town was built on a fault line.