Before I got my tiny Katie (who is 2.6 lbs full grown), I did a ton of research. Brittany (Brittie 123) helped me A LOT with this because of her experience with Mia. Katie was an "accidental" tiny. She was not breed purposely to be tiny. Her breeder kept her until she was 5 months old (she was only 14 ounces) and then I was allowed to take her home. So far (thank God) she has had NO health problems whatsoever. And she's energetic and playful and just an all around happy, sweet, little princess. The breeder was originally going to charge $3,500 for Katie but she sold her to me for ONLY $1,200 - which I think is a great price. I fell in love with Katie the minute I saw her and probably would have paid the $3,500 price for her but the breeder gave me a discount because (1) she knew me personally (2) this was my second dog and (3) because she knew Katie would be in good hands with me. She was afraid to sell Katie because she didn't want to sell her to someone she didn't know - she was afraid for Katie's well being and health.
I personally think any dog under 5 lbs is VERY small. My Codie is 8 lbs and (to me) he's a tiny little love bug with his sexy legs and cute butt.
I don't think it's right to INTENTIONALLY breed for tinies. If you happen to have a tiny ONCE IN A WHILE, that is natural and just "nature taking its course." But to intentionally breed females under 5 lbs is just plain wrong. I think it's cruel and dangerous to subject a tiny little 3 lb dog to a pregnancy.