The issue Willy is that every 4x game I have ever played benefits from expansion. All of them even GCII. The point is that sure you can have a very strong 'small' empire with say 6 or 12 worlds. ..but..the empire with 40 (like the Drengin or the Yor or the Krynn can get) will simply outpace you in all areas, production, research and influence.
Now we can add special buildings which double, or triple the output of your empire but stop working or scale down in effectiveness after a certain number of worlds are colonized/invaded, but I don't know if that would be fun.
One of the core (..X's..) in a 4x game is expansion and to make a small empire as effective as a small one defeats that. One thing players dislike is a game which artificially limits their choices. We want it all. I want to expand and I want the buildings that work with small empires also in my larger empire. I do not like the brakes put on if there is no way to bypass it.
In GCII I would expand to about 6 worlds then I was bankrupt (even if I did 20% economy and took the 20% economy government), and i was UNABLE to expand or do anything for about 30 clicks of the mouse. I am not kidding. It would take me rapidly clicking the mouse about 20 to 30 times to get to where I could keep researching or building new colonizers....all the while the ai was continuing to expand without the same brakes.
I would not mind such rule-sets in GCIII, (I really hated them btw), but if we could tweak how badly it impacts your empire ..maybe reduce research to a mere 20% of what it was, then triple or quadruple the needed production on building ships (dont cut the values I output but instead raise the costs drastically) therefore I am still researching, building and doing stuff but at a far slower pace due to over expansion.
This indirectly addresses your small/tall empire request. By keeping your empire small you never suffer the ill effects over fast over expansion.
Perhaps others here have better Ideas. I would love to see them.