Some really nice thoughts above, thanks for sharing!
Working backwards, in two ways, helped me appreciate IQ produced by compacts:
1. Learning processing and printing techniques gave me confidence of printing and even displaying in art galleries (and selling limited edition prints if I may be allowed to boast) images shot with compact cameras. 12x16" enlargements are a breeze and even 15x20" not at all difficult with 6 megapixel plus compacts. All images I'm referring to were printed on Epson 8800/9800 professional printers.
2. Working backwards from the aesthetic qualities of the image (subject, composition, lighting, etc.), shortlisting the best image/s and then figuring out how best they could be processed and in what size they could be printed. I've hung a lot of framed A4 size prints on walls taken by 5 megapixel compacts and they look stunning! I do a lot of pixel peeping on my images but thankfully no one who has seen framed prints ever peeped close into an image, always saving my day
The above is just an insight, I am not sure if it is a to-the-point answer to your query.
Like you I've had some success in achieving a good print from a very small file, and its interesting that both Michael Reichmann and Charlie Waite talk about the ability of small sensors with regard to printing.
I've produced a decent enough A3 print from something as small as 2MP, and it does seem that is an area where the difference is less marked.
I do however do a lot of magazine and publishing work, and the people who commission that work are very intolerant of anything that falls short of what they would consider minimum standards. Also many stock photography libraries won't even consider images taken on small sensor cameras, though microstock libraries will.
I do however sometimes submit images taken with my old E-10 and "hide" the metadata. Often images taken with this camera are deemed acceptable.
Whereas I've never been able to do the same with images I took on a D-Lux 3. They are always rejected.
I agree, stock photo agencies and magazines tend to have strict technical requirements and compacts may fall short in some areas in this regard. Some of my G9 images taken in good light have been accepted by stock agencies but yes, good technical IQ is always easier with dSLRs. I think compacts are best suited for serious hobby / walkaround / street / fine art photography. Any kind of 'specialised' photography (in this case, shooting for stock) requires special equipment in which case the large (by comparison) sensor dSLR backed by a versatile system of lenses and accessories seems hard to beat.
Hiding the metadata is a good trick, I did that too while submitting some 6 megapixel compact camera images for a brochure and they were accepted
Very interesting observations, David. I always had a similar feeling with my Leica Digilux 2 to what you're describing with your E-10. The D2 had a 2/3" 5MP sensor, which I believe was the Sony sensor which replaced the 2/3" sensor in your E-10. I had a hard time getting on with a Canon G7 when I used it side by side with that D2 and blogged about it at the time: Pixel Stuffing and Dynamic Range
Looking back, I'm not sure that what I was seeing was a directly related to pixel density. All I know is that there was some magic in that D2 - very good dynamic range and colors for a small sensor.
Well for me smaller sensor compacts are finished, the small bag that I used to carry my G9 everywhere now houses my NX10 with 2 or even 3 lenses, far better quality, no issues for stock and better handling. The G9 (and I have produced stock images with it, but never convinced) is now relegated to a 'family' camera, ideal for snapshots and capable of a decent A3 print if required. Really can't see the point of compromising on quality for a small gain in size and weight, but of course everybody had different needs. For wildlife/macro specialist work I will continue to use my Canon 1D' cameras but after the NX10 everytime I pick up a Canon it seems to get bigger and heavier!
I think compacts can have great IQ one such is the LX3 (with its special sensor) its DR is in line with m43 (good)
the E-10 may well be unique in terms of IQ among a sea of small sensor also ran cameras over the years.
The LX3 DOES have noise even at ISO80 it does have a sharp leica/pany lens which helps IQ and the noise @A4 does not show, in fact the A4 print quality is not inferior significantly to an Oly m43 (Pen) printed to A4
Peoples personal tastes and hardware (Printed output LCD screen) are going to effect the result,LCD displays have moved on and I use the EIZO 24" pro (one of the best) this has spot on colour and NO viewing angle variation of contrast.
Publishers / Agencies are going to Pixel peep so will probably reject small sensor images, its their call.