I've done listening experiments comparing good MTMs to not so good W(t/w)W designs and preferred the better engineered MTM. The whole issue is a bit overstated in my opinion. Most people don't sit that far off axis and a good MTM can produce a very dynamic sound compared to having a little 4" driver of a W(t/w)W doing most of the vocals.
I think that's a matter of execution. On paper, a 3-way with a pair of 6.5 inch woofers crossed to a 4 inch woofers, should have better power handling than a pair of, for example, 5.25 inch drivers.
The crossover is the heart of the speaker. An MTM is always going to be inherently flawed as a center channel but a good crossover can of course salvage it somewhat, but a good crossover and quality drivers for a WTMW, should produce better results and It really doesn't make sense to me why companies continue to make MTM centers.
You can make an acceptable sounding MTM center speaker, by crossing over to the tweeter very low (close to 1khz hopefully). But then you've still run into a problem of power handling just like those poorly designed WTMWs you've heard. Unless it's like a 2" tweeter; that could work if it's clean enough. So you raise the crossover frequency. Now you've got a quickly narrowing off axis response, until the tweeter comes in and does the opposite, widens the off axis response. The power response of the speaker in the room, is flawed.
I'm sure it's possible to find a balance between the two where they don't sound unlistenable. But why bother?
There's definitely some smaller mids that can handle power and have adequate sensitivity. They maybe can't do bass, but that's why it's a WTMW, not a TM. Accuton, B&W, ATC, Visaton, Scanspeak, and Harman have some small drivers that can handle as much power or more as larger drivers in the right system. Recently, Kevin Haskins was working on a low inductance 5.25" midrange driver with about 8mm of rated xmax, 6mm of that completely linear on the BL/CMS curves.. somehow I think that wouldn't be dynamically limited as the mid in a 3-way ;P
And of course, there's coaxial drivers too, which take up the same vertical space as a "TM" with a smaller woofer, but use a larger driver. Pioneer and KEF have some center ch offerings in this regard.
At the end of the day, if you want a well engineered speaker, there's a lot of factors at play, that we both agree. But I wouldn't say the use of 4" drivers as mids is inherently flawed in a 3-way speaker (that tends to effectively become a 4-way when a sub is introduced)
This PMC speaker for example, uses just a 3" dome midrange. That doesn't mean it's necessarily dynamically limited, unless we're talking about the size/distance of rooms where compression drivers are necessary.