The part I don't understand is how a small party would always hold the balance over power. It seems rather more likely that a large party would hold the balance of power. 

Also, no one will allow a small party to hold the balance of power on an issue if it would go badly with their supporters and/or other potential voters in the following election. 

How democratic is it to fearmonger about the possibility that every now and then, a party with 5 or 20 seats will hold the balance of power on some particular issue that maybe other parties don't support hugely, or even oppose, but for something that a lot of people might be kind of OK with (as long as it's nothing crazy, 'cause, y'know, we're not crazy around these parts and all ...)? 

I don't think we should fearmonger that occasionally a small party might provide the additional votes for something that a near-majority coalition already supports. In Canada.