They won't though - Instead of being united already and being able to focus your energy (monarch points, money, manpower et cetera) on a few bigger states, you're forced into repetitive wars for tiny provinces with all of your neighbors hating you.
Having more states doesn't mean more monarch points - It means more states each having to use their own monarch points for the exact same goals. Quill's England became plenty more powerful with the added land - lots of tax, manpower and trade value in those provinces.
That'll improve their chances of surviving the European invasion for sure! (Again - Sarcasm)
Uh, I never claimed the best course of action would be to annex all the tiny provinces. Quite the opposite, in fact. More provinces does mean more manpower and money (although uncored provinces is not that useful for either). But both are only really useful for raising a better army (specially since they don't seem to have a pool of good advisors), which imply facing the Europeans head on, which is a losing strategy on itself.
And, yes, more states does mean more monarch points. This is obvious and doesn't need to be argued. What you claim each state will use their own points for the exact same goal, but this is not necessarily the truth. Sure, if they only use their points to improve technology, they will all be expending on the same thing. However, if they expend on improving provinces, for example, then they will improve the collective provinces faster.
Furthermore, maybe you did not understand well what I said, but I wasn't saying that fragmented would be necessarily stronger than a single state. Only that a single state wouldn't be so much stronger to be able to face Europe, as the power progression is not linear. An Aztec that annexed Zapotec is not twice as stronger as it was before. My point is that multiple states would give each of the more options to deal with each other and the Europeans, making the gameplay more interesting and variated.
Finally, I did not mentioned early, but the fact the Europeans can just go and roll over the natives is a trouble on itself. Historically, Spain needed alliances with multiple minor tribes to take on the Aztecs. If this would be fixed, a fragmented America would only make things more interesting and historical.