Yup, it is a smaller sensor, but there is a rationale for the size. And yes, it is still a digital full-frame sensor system made from the ground up so that every component is digital compatible.
More 4/3 Info (From Four Thirds User Forum)
"Four Thirds is the collective name for the camera system comprising compatible DSLR camera bodies, interchangeable lenses, accessories, and software. Originally conceived by Olympus, in the form of its unique, designed-for-digital E-System, launched in 2003 with the Olympus E-1 semi-professional specification camera, Olympus found it difficult to meet the monumental challenge of establishing the brand new E-System as a successful alternative to other camera manufacturers, including Canon, Nikon, Pentax, Sigma Fujifilm, Kodak, and
others who simply, and relatively inexpensively, adapted their 35mm film camera systems to digital.
Olympus had all but quit the mass-market 35mm film SLR market in the early 90s after deciding not to upgrade its manual-focus OM-system for the market demand of autofocus SLR cameras. Therefore,
Olympus had the advantage of launching into the up and coming digital SLR age with a clean sheet. The result was the E-System, with Kodak supplying sensor chips and both Fujifilm and Sanyo signed up as technology partners.
Four Thirds is still the only DSLR system standard designed from scratch to be a thoroughbred digital platform. In relation to the size of the sensor, the Four Thirds lens mount is huge, enabling a large diameter rear lens element to cover the sensor area and minimise a significant issue experienced with lenses designed for film when used on digital sensors. With lenses like these, designed with relatively under-sized rear elements, sometimes too close to the sensor, the physical characteristics of the surface of a digital sensor, made up of millions of microscopic light sensitive pits, reduced light collecting efficiency towards the corners of the frame ushered in a new term: corner shading. Besides darkening in the corners, lenses not optimised for digital sensors could also cause reduced sharpness and chromatic aberration, or fringeing. Olympus knew about these issues and formulated the Four Thirds lens mount diameter, sensor size and distance between mount and sensor to minimise corner shading."
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Yes, ur 7 foot basketballer is a bigger full-frame...but he is not optimized, unlike the 4/3 full frame which is optimized for digital technology. In order for your 135 full frame sensor to be fully optimized, I would imagine that your lens, AND lens mount, would have to be about 2x the size of what it is currently. Clearly, it is not practical. In this kind of situation, u might as well go medium format. So, u shoe horn the 135 full frame technology into the camera body, and market it to death.