Micro 4/3 is by design a compromise between sensor size and overall camera and lens weight and volume. Micro 4/3 is a great compromise in that way, in my opinion. While the sensor is ~1/4 the size of 35mm full frame (50% in each direction), the compactness of the system is just plain right. If it were smaller, it would be too hard to use with human hands, in my opinion. As it is, I certainly hit the wrong buttons on the G3 once in a while, but that's probably my fault. Again, in my opinion, if I were designing a system, I would likely do exactly what they did with Micro 4/3 - go slightly smaller in sensor size, in favor of a compact system overall. This is because we all know that sensor technology will continue to improve, so the down sides to a small sensor will decrease over time. The progress made in high iso performance since Micro 4/3 started a few years ago is amazing. And, it's getting better all the time. The only real limitations are physical - like the effect on depth of field imposed by the small sensor. That can't be fixed by sensor improvements.
That said, not everyone agrees with me on how good the format is. PhotoPat on mu-43.com posted that he had a terrible experience with the Lumix DMC-GX1. He's now sold it off.
(Click Here) to read PhotoPat's thread on mu-43.com
As you can imagine, and read in the comments in PhotoPat's thread, posting disappointment in Micro 4/3 on a Micro 4/3 forum invites some dissent. Nothing too bad, but interesting.
Sometimes I have to go back and compare images that I've gotten with full-frame cameras to what I'm getting with Micro 4/3, just to convince myself again that Micro 4/3 image quality is good. It is. I'm pleased with it for much of my photography.
Here's an example shot, which won me a contest and made it into the Civil War Trust's 2011 calendar (September page). This was shot with a first-generation Micro 4/3 camera, the DMC-G1.
I would never prescribe Micro 4/3 only to anyone else. In fact, you'll see that I shoot plenty of other systems. But, if you use it carefully, the Micro 4/3 system is surely capable of producing some nice images.