I went thru the same problem, but in the exactly opposite direction. I don't mind compromising folding size to increase performance/ergonomics as long as:
1) the bike fits into my car's trunk in 30 seconds or less and
2) I can make it significantly small for international travels in 30 minutes or less.
After my little research, here is my contribution:
You cannot install the new and upgraded 2005 proprietary Dahon stem unless you have a 2005 Dahon.
Take a look here
(you can get the Dahon extension though).
In my opinion, one can benefit a lot more from upgrading the handlebar than upgrading the stem (cost effective move looking for a compact fold).
I come from a mountain bike background, so I am a big fan of straight bars. I got a new, longer, slightly curved bar for my bike because the original one would not let me fit everything that I needed on it (decent light system, decent size handlebar bag for documents/camera/wallet, odometer/bike computer and a nice/effective horn). I also added bar extensions so I can have the options for long rides. After adding all this crap to a significanly longer handlebar all I added to the folding final dimention was: 2 inches (not counting the bag that is removed before folding).
In other words: Go after a mountain bike handlebar. If you get a slightly curved one (like the picture above) and cut about 2 inches on each side, you will end up with the stem being the defining point of your folding size, not the handlebar (since it's curved "inwards").
Here is the amount of junk that almost doesn't affect my final folding size:
Let us see what you end up with.