Well as I see it the penalties are in place to keep large Empires from steamrolling the smaller ones, not to make them inviable for play. It makes little sense to me, that an empire would be weaker for having more recources at its disposal. If you want to play tall, theres always expensive terraforming tech and such you could focus your attention on, rather than having to spread your recources everywhere, thereby creating your little Utopia in your small corner of the universe. If by that combined with some turtling and careful diplomacy you can defend yourself from being overrun at a whim, I'm fine with that, but you shouldn't be able to take on the galaxy on your own because your homeworld is space Venice.
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