I don't think Shenmue II was too big, I think the game needed to be to truly convey Ryo's journey from "hometown" to foreign metropolis. The player should feel lost at first. But I do think SII's epic size detracted from the intricate details which made Shenmue so immersive. For me, NPC routines, Ryo's forklift job, waiting (whether you like it or not) made the original game feel more like an "experience", almost a life simulator (well, for a 1999 videogame anyway).
The terrible jobs in II and overly helpful NPC's sorta dented the true "immersion factor" for me. I know HK / Kowloon are big environments, but the NPC guide feature felt really strange. Who guides a complete stranger across 3 Quarters, walking 5 paces ahead of them and making no conversation? Apparently everyone!
Detail / scope is a trade off I guess. I know I'm dreaming now, but if they can balance the size of II with the immersion of I in Shenmue III, I'll die happy.