You just repeated your point without adding anything new, that doesn't help your argument.
They couldn't use the shorter code space. So no, they could not do whatever they wanted. (note that making a completely new instruction encoding scheme would fail for obvious reasons)
I disagree, 64bit mode did not have to have any kind of instruction compatibility. It could have been a completely new instruction encoding scheme. A 64bit process must run all 64bit code, there is no invoking 32bit code from a 64bit process on any modern OS for AMD64.
And adding to that, they could've probably come up with some sort of 32bit per instruction risc structure where the the makeup overlaps with the cisc x86 encoding. For example, pack the 16 bits of a normal x86 instruction into the first bits of the risc, then add second source register and a bit or to each operand to increase the number of registers.
That is the one advantage that i think ARM has over x86/amd64. That ARM encoding is much shorter.