On our server there are some smaller guilds that are Diamond League. Pretty amazing how they can fight against the big guilds.
The only real advantage of being in a small guild is that you might get more attention and favors from the top players. For example, I had a friend in a small guild and the leader was feeding him hundreds of FP constantly.
However, in the long run a big guild is way better than a small guild (assuming equally advanced players) for several reasons:
(1) your GBs will level a lot faster
(2) trading is better, the more people are in the trading pool
(3) it's more likely more people will be online at any given time
(4) bigger guilds do better at PVP on average
That being said, a good small guild is a lot better than a large guild full of mediocre players. When I first started playing I was in an open invitation 80-member guild that had a lot of weak players and freeloaders in it and they did not open level 3 or 4 of GE, so I could only do GE 1 and 2. That was a total bummer. Later I joined a small guild of about 16 players, but all of them were heavy hitters 10M points and up and one 330M points. They were all really smart and helped me enormously, much more than the weakies in the open invitation guild. The open invitation guild was just way too casual for a serious player like me. Of course, if you are just logging on once a week, you may want to be in a large casual guild. Normally small, hardcore guilds will not tolerate an inactive or casual player.