Hi James
There are a number of things to consider. Firstly, just because she is small, doesnt mean she will throw small foals. What are other members of the family like? Even if she does throw smaller foals, that doesnt mean they wont be any good. There is certainly a mindset amongst yearling sale buyers that small is not good. However, there are many examples of this not being the case. The most famous probably being Courage Under Fire. Baby Bling was a very small yearling and is still on the smaller side.
If you are going to race the resultant progeny, then i would say you should absolutely go for it. One of the best broodmares of recent times was French Flair - she produced 2 millionairres in Fleur De Lil and Miss Galvinator and another in Our Galvinator has won over 600k. She would barely have been 14hh and her foals whilst a little bigger, were still on the small side.
I would suggest you breed her to a stallion that tends to throw some size into his foals, but other than that, I wouldnt be put off from breeding from her.
Regards
Harvey