Competitive amongst other photographers. Merit or money.
#1 Stock photography -- I earned way more from the photos taken by my -- wait for it -- point and shoot cameras than all my DSLRs combined. Not kidding. Stock photography is more of quantity than quality from what I noticed.
#2 Street -- you may not earn anything here so it is all about merit amongst togs. Small is king here.
#3 My favourite photojournalist is Steve McCurry. He shoots with a D700 although he's got a disability in his right hand and he is a righty. I thought that life would have been much easier for him if he had a small camera. Generally when you are running with the protesters or avoiding gun fire less weight is better.
#4 Those pro wedding togs that shifted into the Olympuses and Fujis are not the rule (yet) but there is certainly a trend going on here. Carrying around a 70-200/2.8 and 5D3 for 8 hours will hurt and they understand that.
The smallish cameras have to catch up in some areas like you said. AFC, flash systems, lens choice (although they are practically complete now), etc... But quality is certainly not an issue anymore. Imaging systems have improved a lot that it really boils down to personal preference. To counter your original statement, 99.9% of the time small cameras are all you will ever need.