Yes and now. A smaller sensor will have wider DOF. Regarding diffraction it is a bit of nonsense. Diffraction is only dependents of aperture, and affects smaller formats identically. Of course, you enlarge a smaller format more but with a larger format you must stop down more.
The good news is that diffraction responds very well to deconvolution based sharpening, because it can be approximated decently well with a gaussian.
So stop down to f/16 (or f/22 if you must) and use deconvolution based sharpening with a larger radius.
There was a recent article on http://www.onlandscape.co.uk/issues/l
clearly stating that Nikon D800 (36MP) at f/22 and optimally sharpened outperformed a Sony Alpha 900 (24MP) at f/8 and also optimally sharpened (it was a pay article).
What I see in my own pictures that stopping down to f/16 is OK. On 4/3 you would get the same DoF at f/8. I would probably sharpen with the following parameters in LR:
Detail (100%, that kicks in deconvolution)
And I would have some luminance noise reduction.
I have written three articles that touch on the issues:http://echophoto.dnsalias.net/ekr/index.php/photoarticles/68-effects-of-diffractionhttp://echophoto.dnsalias.net/ekr/index.php/photoarticles/49-dof-in-digital-pictures?showall=1http://echophoto.dnsalias.net/ekr/index.php/photoarticles/29-handling-the-dof-trap
I am looking to increase depth of field in landscape photography for systems without access to good tilt-shift lenses. I understand the loss of other qualities that contribute to overall image quality inherent in choosing smaller sensor over larger sensor cameras. However, if you set that aside and concentrate solely on maximizing depth of field, it would appear that smaller sensor cameras have an inherent advantage. However, it also appears that the smaller the sensor and the more densely packed the sensels, the wider the f-stop at which diffraction begins to degrade image sharpness, thus negating at least some of the improvement in image sharpness from the greater depth of field. Is there any short-hand way of measuring this trade-off so that one could determine the optimum sensor size/megapixel count (for any given lens/focal length and f-stop) for maximum depth of field without degradation from diffraction? Or is the reality that diffraction denies any significant advantage to the smaller sensors and therefore, for maximizing depth of field, in the end sensor size doesn't really matter?