First, I absolutely love the keyless ignition, but that's also because I have the proximity key, so I never have to touch the key. I put it in my pocket and forget about it. Well at least as much as you CAN forget about a "cinder block" in your pocket.....To the dude who took his spring out - is there something inside the fob that mandates it be that big?
BTW, after having a rental JK and deciding I wanted to buy a Jeep the FIRST thing that pissed me off when I saw and test drove one was the keyless ignition. .....
Seriously though, and to answer the first question. Yes, the key is that big for a reason. It could be slimmed down a tiny amount, but not much. The circuit board inside it, does take up most of the room and the metal key beside that. So you've got the size of the circuit board, with added width for the physical key next to it. The size could be shaved down a little if they moved the metal key, which is basically what AJT did with their design. The OEM key could also be made a hair shorter by removing the button/spring for the flip out key. Again, another thing AJT did with their design. Basically the only available aftermarket fob did the only things you can really do to reduce the size. They eliminated the spring/button, and the stacked the key behind the circuit board rather than putting it next to it.
So the short answer. No there's not a lot they could do to make the fob smaller. The circuit boards in them are pretty big. The AJT design is about the smallest they could have done, and apparently a lot of people don't like that design either.