I think the idea of hell is to have portals that allow you to move great distances in a small amount of time. I see what you are saying and even though hell would be faster it will probably be far more dangerous. Could you imagine if hell was a huge place and random portals could take you to some random island 100 blocks away? Or take you to the depths of the planet in some ultimate dark cave?
Actually, I expect hell will be the same size, or to say effectively infinite. If you want to try hundreds or thousands of blocks over that way and portal back, you can simply expect that it is going to generate a new cluster in the far far away place you just portaled into.
The one thing I am curious about is how height is going to affect portals. If you dig down 60 tiles in hell and portal back what happens? Does it just ignore height and stick you on the surface? Potentially it could be a nasty snarl.
For that matter, what happens if you portal back into a solid area? does it just push you up to a different tile again? Is it possible to end up portaling back into a pool of lava or at the bottom of the ocean or something?
This is why I'm personally guessing that the portals will open down through bedrock, replacing the "Void". After all, the entrance to Hell itself must be pretty far underground... and I don't particularly foresee you being able to create something that takes you there, personally.
So my guess is the bottom of the world drops off into Hell.
I disagree with the last post. There will be portals (as said by Notch) that take you to Hell, walk 10 meters, and teleport possibly 1000 blocks away. Or something like that. My thought it is will have a similar look (or feel) as a dungeon spawner. It might be something you have to make using some new type of ore or block...
From Normal world, you step into Portal 1. Now you're in the Hell world. If you walk around in here, soon you'll find another portal. This is the Hell-side of Portal 2. The thing is, these portals are much closer from each other in Hell than in the Normal world:
[PORTAL 1] <------- 10 meters -------> [PORTAL 2]
So instead of traveling hundreds of meters in the Normal world, you can just hop into Hell, walk a short distance, hop into the exit portal and fall back into Normal world. And you'll have traveled a big distance, shortcutting through Hell.
Now, some quick facts:
[*:110t52tm] The actual conversion of 1:10 is not confirmed, the update info was very vague: tens and hundreds.
[*:110t52tm] If portals will be natural formations or constructible, we don't know yet.
[*:110t52tm] Portals will most likely NOT be deep down in the map, like you'd naively expect for "Hell". Hell is just the name Notch is giving. He has stated several times that his inspiration are The Ways from the Wheel of Time series of books, and those are ancient constructions by previous civilizations.
[*:110t52tm] The details on how things will be inside hell are unclear, but from the previous "Hell" theme in Indev, we can hav a guess. Look up "minecraft hell" on YouTube.
[*:110t52tm] For simplicity, Hell will probably be just an extra sub-map for your world, which means it'll also be potentially "infinite".
If hell is like the hell theme then it'll basicly be a small island surounded by lava - since in hell all water = lava. Also if I remember correctly grass does not grow and mobs can spawn where ever they feel like.
Chances are it will be a seprate part of the generated map - and relitively small (or smaller) land masses.