Some SI1 diamonds do have inclusions visible to the naked eye - you should check out the individual diamond yourself. As for size, "too small" depends on who you're asking. Is the ring intended to impress people or to symbolize your commitment? If the latter, then any ring will do if your sincere feelings are put into choosing it. If your intended is picky about these things, ask her opinion.
A note about diamonds, if you are a conscientious shopper: diamonds are a key resource in illegal weapons trading and financing of conflicts in Africa. Military and guerilla groups mine diamonds (often with slave labor) and sell them to finance their military operations. If your heart is set on a diamond and not a different stone, please check out this buyer's guide that tells what various retailers and suppliers are doing to ensure that their diamonds are KP (Kimberly Process) certified conflict-free diamonds. You can find a seller who works to be sure they're not selling blood diamonds:
http://www.globalwitness.org/reports....php/00289.pdf
You can read more about it here:
http://www.globalwitness.org/buyconflictfree/
The diamond wasn't the "engagement ring" stone until the middle of the 20th century when the diamond industry went on an advertising blitz. Prior to that, birthstones, parents' birthstones, or just something that suited the wearer's personality, were very standard. The ring as a symbol, more than the stone in it, was the important thing. There's no real "reason" to get a diamond except that it's conventional.