Correct me if am wrong, but didn't naruto say thanks to the kyuubi he wasn't squished like a pancake? and that is Tailed beast version 2. If chibaku tensei was bigger, Naruto and the kyuubi couldn't escaspe.
you can't kill itachi, he is an edo. Chibaku can act as a seal to an edo. of course, why go through all that massive chakra jutsu when you can just simply seal him. And if the jutsu falls apart, you can find itachi in the middle.