Yep there's still a good bit of atmospheric drag even at the ISS's altitude. Once you get beyond the atmosphere you get solar wind creating drag too. The ISS is periodically reboosted into a higher orbit by engines on one of the Russian modules.

Also, small satellites have much higher surface area to mass ratios.

Yeah that's another big factor in how fast they decay. The fact that they deorbit easily is good though, if they stayed up for a long time it'd be harder for NASA to approve so many so easily because they'd become a threat to LEO operations. A lot of them are launched from the ISS.

How do the approvals work if you are not in the US?

The ESA and JAXA both seem to run approvals too. I'm not sure about their current plans/proposal request statuses the only ones a surface googling finds are several years old so they might be in between proposal cycles.

There are a couple projects working on miniaturized ion drives for cube sats.

how much energy do these consume? would solar panels on a cubesat provide enough energy for staying on orbit for years?