My old laserpoint would cut very very small text, you just have to be VERY accurate with your blade, pressure and offset settings- be prepared to spend some time learning to set up your maching for cuts using different vinyls, colors etc. Each color, and even rolls of the same color can require very very minor tweaks in pressure and blade depth.
You didn't say what your budget is. Buy the best you can afford. If you can't afford $1500 or so for a graphtec...just about any of the value cutters will cut down to 1`/2 inch letters. I do it all the time.
I am stuffed in a 10 x 12 room, with three tables, a cutter, a heat press, four milk cartons of vinyl, a wireless printer, two chairs, a light table and two dogs.............