I used to be one of those no-eyeliner advocates for small eyes, but looking back...I was so wrong!
I think it's a common misconception that eyeliner makes your eyes look smaller. It's all about placement, really.
I have small eyes myself, and I like to apply eyeliner to the upper lashline (REALLY close to the lashline), and to the outer 1/3 of the bottom lashline. It's important to smudge it out so it looks softer and not so harsh, which is why pencil eyeliner is a good choice. Actually I'd have to say eyeshadow is my liner of preference.
But sometimes, the look calls for lining the entire eye. While I do think the whole tightlining + lash lining for top and bottom lids does overwhelm the eye and make it look a little smaller, it could be the look you're going for...It's just a trade-off between bigger-looking eyes and a sexy, smoldering look.