I don't know about smaller sensor cameras. In my case back in early 2011 I bought a small Pentax...think it was a W90...only had it for a few days. The on/off wouldn't work...camera was always on...I took it back quickly to the store and traded it in, plus some bucks for a Canon G12. My idea to get a small camera...also with a smaller sensor was to have a carry around camera...something I could put in a bigger pocket..kind of like my old Olympus film clamshell. My idea is that the best camera to have is the one with you is the one you have at the 'decisive moment' (apologies to Henri Cartier-Bresson)
...and as I couldn't stuff my Pentax K10D with motordrive into my coat pocket...I decided to think small.
On reflection the small Pentax WG90 would of probably been ok for a carry around, but that sensor was small and the Canon G12 was sort of ok..a little bulky...but I also notice the difference in image quality produced by the small sensor compared to the image quality produced by my Pentax ASP-C (K5, K10D,Km) and K1 full framer. I'm very pleased with image quality coming from the four Pentax DSLR cameras I have...the G12...no...not so much.
Now I know that the G12 sensor size is not as big as the sensor in the M4/3 cameras...but in my case...I believe the absolute minimum sensor size I would be happy with would be the ASP-C. For me a pocketable camera with an ASP-C sensor would be the Ricoh GR 111. The GR has a fixed lens...wide angle... so no problem for me. The only concern I have with the GR 111 is that some earlier models seem to get dust on the sensor. I'll be interested to see if the GR 111 has that issue. If not, this maybe the eventual small carry around camera for me.