Oscar is 3lbs and I have the size small - it's a little bigger than I was hoping, but it works find just the same. Because there's no real structure to it, the bag just hugs your side and your puppy.
The downside to this bag is that it does not have any pockets whatsoever - like you, I think it would be convenient to have a couple small pockets for cell phone, wallet, keys etc. to eliminate the need to carry multiple bags. I usually just toss this stuff in the bag with Oscar and he sits on it.
