Killing of the 17" MBP does not signify Apple's intents to go for smaller screens. They killed it off because it wasn't selling well. 2012 iMac sizes will be 21.5" and 27" at least. If anything, they will probably be increasing the sizes soon. 24" monitors are now fairly common.
This. It only accounted for 1.7% of sales, or something like that. So the manufacturing costs probably outweighted the profits.