it's a small world is a better fit in Epcot. It is the perfect attraction to bridge Future World and World Showcase. It celebrates children of the world and it debuted at a World's Fair. It is far more appropriate in Epcot than it is in Fantasyland.
The shortcomings of the rest of Magic Kingdom's attraction lineup aren't the motivation, but Fantasyland real estate is part of the motivation. If it's a small world is removed it opens a much larger area that can further address the capacity issues you just mentioned. As it stands right now, access to that land and improving that area requires moving it's a small world.
To double down here, I'd also recommend removing Tomorrowland Speedway and integrate a new version of the attraction at DHS integrated into Cars Land rock work and an east coast Radiator Springs Racers. Land in Fantasyland is the most valuable land in the entire resort and moving these two attractions further expands that real estate.
If you've read my other replies on the forums yu would know that I have said to relocate IASW to the north side of the speedway speedway like in Tokyo. They can shorten Whatever the river is called where the riverboat runs to connect Frontierland to Fantasyland. Tomorrowland could get a new ride between buzz and carousel of progress, while restaraunts, shops, and minor attractions could go between COP & SM, and also connected to The new show building for IASW. Then every building in Tomorrowland could get new exteriors to fit with the land as a whole. IASW would serve as a land boundary between them. Yu would not see the show building at all and because shops etc. would be connected at the back that would look like Tomorrowland. There could also be grass like the fields in the Movie Tomorrowland as you enter form Fantasyland. The rock work at the beginning of the land would be changed, and of course COP's exterior, and the peoplemover, so like I said everything. It would be an ambitious project, but this along with Froniterland expanded would mean MK wouldn't truly need a major expansion for 20 years, but a ride or two wouldn't hurt in that timeframe. Again your argument for IASW for the bridge to WS just doesn't work. Sure it represents the countries, but there is a ride very similiar to it at Mexico. MK needs high capacity attractions, it is a classic at MK, so people would be mad. the show building cannot go in the center, so the only place really is at Epcot's first aid building, but that serves its purpose well, and really is not worth the investment to move it there. I just couldn't imagine it there, would that area be then considered World Showcase and Not Future World? WS has country pavilions WS has pavilions of cars, the seas, space etc. would there be a boundary for the line of sight? How would it look for the fireworks? I mean I think it could work for WS, but it would be awful if you saw it from FW, not to mention where would First Aid go? Would there be restrooms alongside it? I see where you are going with this, and theoretically the could work, but it makes zero sense from removing it from MK. It would also look kind of odd kind of towards the back, but if you put it too close then the show building would be behind it, and disgusting a mega show building like IASW would not be cost effective at all.
I saw just leave it in MK, sure maybe relocate it within the park, but Epcot needs a billion things more than just moving a ride from another park. And like I have said before 5 Fantasyland have t, so Disney for sure thinks it works thematically. Also Fantasyland just isn't about fantasy, it is about the architecture, the style of ride, the music, the interior, exterior. I just think it wouldn't be wise at all. We need a 2400+ per hour attraction on top of new things that could go in MK. We do not need to lose it to Epcot, a park that already has many horrible walk on attractions that Epcot's money should be spent on to make them new. IASW has zero business in Epcot. The exterior in Paris looks beautiful and I could even picture it in advertisements for the park, but MK just has that nostalgia factor having it. Just leave it there, why continue to argue something that will never happen?