Should I try to make my sketches as small as possible, even when I have enough room?
You second code may be smaller in size but due to the function call overhead the max execution speed is reduced.
Does this matter in your case? No, because you have huge delays anyway, but if the code was an actual series of repeated calculations that should be executed as fast as possible then it would make a difference.

As a general rule, smaller code is not necessarily faster too.

For code optimization (either size or speed) you can refer to this application note from Atmel AVR4027: Tips and Tricks to Optimize Your C Code for 8-bit AVR Microcontrollers

I could repeat everything it says here but I don't think there is a point, you can read the original article directly.



Regarding the compiler optimization level. Arduino IDE uses the avr-gcc compiler with a setting for Os optimization.
The avr-gcc available optimization levels are (source1 source2)  


O0 or no -O option
At this optimization level GCC does not perform any optimization and compiles the source code in the most straightforward way possible. Each command in the source code is converted directly to the corresponding instructions in the executable file, without rearrangement. This is the best option to use when debugging a program and is the default if no optimization level option is specified.
O1 or -O
This level turns on the most common forms of optimization that do not require any speed-space tradeoffs. With this option the resulting executables should be smaller and faster than with -O0. The more expensive optimizations, such as instruction scheduling, are not used at this level. Compiling with the option -O1 can often take less time than compiling with -O0, due to the reduced amounts of data that need to be processed after simple optimizations. 
O2
This option turns on further optimizations, in addition to those used by -O1. These additional optimizations include instruction scheduling. Only optimizations that do not require any speed-space tradeoffs are used, so the executable should not increase in size. The compiler will take longer to compile programs and require more memory than with -O1. This option is generally the best choice for deployment of a program, because it provides maximum optimization without increasing the executable size. It is the default optimization level for releases of GNU packages. 
O3
This option turns on more expensive optimizations, such as function inlining, in addition to all the optimizations of the lower levels -O2 and -O1. The -O3 optimization level may increase the speed of the resulting executable, but can also increase its size. Under some circumstances where these optimizations are not favorable, this option might actually make a program slower. 
Os
This option selects optimizations which reduce the size of an executable. The aim of this option is to produce the smallest possible executable, for systems constrained by memory or disk space. In some cases a smaller executable will also run faster, due to better cache usage.