I ended up getting a 120mm stem and its completely horizontal. I went into a very fixed-gear friendly shop today and talked to a mechanic for a while. He ended up being real helpful..

The pictures posted before didn't really show my leg extension properly.
I can make my leg completely straight when its in the 6 o' clock position, but when I'm actually riding there is just a slight bend.

And I have a bend to my elbows and when I'm looking down whilst riding, the front hub is blocked in view by the stem.

So I feel like I'm in good shape.. There's now a bit of a seatpost to bar drop ratio but I actually dig it.

Anyways, what I'm getting at is.. since my leg extension and reach is fine now, is there any disadvantage of having a bike that is a size too small?

The stand over height is the same as the Mercier Kilo TT from Bike Island I was going to get but since the reach is now 645mm (with the stem) vs the original 525mm I was working with, I should be fine right?

Plus, the stem doesn't go over the axel which is good. I feel a bit funny being so high above the top-tube but I seem to see it regularly..

But anyways, it feels great.. The rides are getting longer and longer.. my back does get sore but I had a bad back to begin with. Can anyone else give me any advice? I don't see the point in going through the hassle anymore of taking my bike apart and getting a 53cm since I feel good on it now...

Lastly, sometimes if I am skidding down real steep hills, the strap on my right foot comes loose. It's pretty annoying adjusting straps every 20-30 minutes. Can anyone recommend a good clip/strap combo?

Thanks!