If you don't need the space of the E70, why not? Smaller vehicle equals less weight, less fuel, easier braking, more responsive handling, etc.

New X3 is bigger and, as noted above by LeMansX5, almost E53 size anyway. BMW has moved X3 up in size because X5 went up in size from E53 to E70. And BMW needed room to fit in X1 at the bottom. All car makers do this.