It actually turns out that being smaller can be worse if it means you're just building a half-assed implementation of something Rails 3 already does well.

I beg to differ.

There is a lot of space to cover between a bare-bones HTTP DSL (which Sinatra is) and an opinionated full-stack like Rails. For example, Padrino allows you to freely choose between a lot of Ruby ORMs _and provides support_ to use them. Try that with Rails.

As another example, Padrino allows you to do Rails-Engine-like things in a very natural way (by hosting multiple applications in one Stack etc.). It is not a Rails rehash on a different base.

The Rails 3 rewrite / MERB integration was supposed to accomplish this by allowing pluggable ORM's and different libraries. Is Padrino trying to be the new MERB? I think extending Rails to be more modular is the way to go, not more frameworks.

What's the support Padrino provides for non-ActiveModel ORMs? How does Rails not provide that support?

You can host arbitrary Rack applications inside Rails with a single line in routes.rb.

Can you host arbitrary Rails applications in other rails applications like you can host arbitrary Padrino applications within another Padrino application? (it should even be possible to host padrino apps in any other rack app, though I've never done that so far, it might need a little hackery)

Yes, they're called Rails Engines:

http://edgeapi.rubyonrails.org/classes/Rails/Engine.html

Rails is a Rack application, so yes a Rails app could play host to more than one sub app. In fact this is such a good pattern, that Rails core added Rails Engines which do just but better.