As I mentioned in my prior blog, there are reasons to consider different packages than just physical size.
Sometimes it is just space available on the PC board, but there may be other considerations as well. One of the first to consider with really small size packages, is the capability of your manufacturer. Not all assembly service providers can deal with super-duper small parts.
That's a paperclip next to the little ESD protection chip in the photo on the left. At Screaming Circuits, we can go down to 0201 passive parts and 0.4 mm pitch BGAs. We've even done a few 0.3mm pitch BGAs, but those are pretty rare still.
Some manufacturers stop at 0402 (or even 0603) parts. If that's the case with your manufacturer, then you'll need to eliminate sizes smaller than their limit (or find someone else to build the board).
Cost might also come into play. It probably won't be enough of a factor to worry about during prototyping, but it may be worth looking at for volume production. Sometimes the smaller form-factors add cost. Sometimes the part value you need may not even be available in the smallest packages.
Noise can factor into your package choice too - especially regarding bypass capacitors on high speed chips. You want your bypass capacitors as close to the power and ground pins as possible. The higher the speeds, the more important this is. Dropping your package size down to 0402 or 0201 can make it easier to put the caps closer to power and ground pins.
You don't need to ask Alice because your parts aren't ten feet tall