We live in a 650sf one bedroom apartment for a family of 5, two adults, DS1(7), DS2(5), and DD(3). We just made the bedroom the two older kids room and put a queen bed in our living room. We pretty much cut the living room in half. I personally like having a small space as it prevents us from accumulating too much stuff because there is no place to put it. We have gotten pretty good at maximizing the limited space, with all the kids stuff, bikes, books, ect. We still have plenty of guests come over for dinners and play dates. There is a common area for larger get togethers and the weather allows us to be outdoors year round.
We travel quite a bit and just bought an RV this year, which is was actually much cheaper than moving to a two bedroom in my city based on one year's rent, ha!