How much smaller frame is ok?
You can use a bike that's "too small" or "too big" without too many problems, so long as you set it up properly for your own biomechanics. 

Try using this fit calculator instead: http://www.competitivecyclist.com/za/CCY?PAGE=FIT_CALCULATOR_INTRO

Compare the bike you really want with the results of the calculator. It will give three separate options, and provide you with a rough idea of whether the bike is likely to be a reasonable fit for you. 

1.5" doesn't sound like a lot, but in the world of bike fit it can make a massive difference. Ideally you want to work around things that don't fit by changing components, but you need to know first if changing the components will help.