1. Why do larger mining pools have less orphans, assuming most miners even small ones are connected to the relay network?
Because it greatly reduces the time it takes to transmit blocks but does not completely eliminate it-- nothing can (due to the speed of light). In particular, something I didn't know until my conversation with them on July 4th: the nearest relay network hub to F2Pool is still 200ms away due to insane routing that sends traffic between some networks in china and singapore via the US (thanks NSA?).
since small pools can also connect to the relay network, and i assume they do, there is no reason to believe that large miners can attack small miners with large blocks. in fact, we've seen the top 5 chinese miners deprecated due to the GFC making it clear they CANNOT perform this attack despite what several guys have FUD'd.
2. Even if mining pools set higher fees, aren't the unconfirmed TX's still added to their mempools?
No.
how can that be? mining pools all use a full node around which they coordinate their mining. all full nodes are relatively in sync with their mempools which is the whole concept on which IBLT depends on.
3. How is it that 1MB just "happened" to be the magic number at which blocks are deemed to be "large" ?
I don't know what you're talking about there. AFAICT F2Pool would also consider e.g. 750k "large".
750 kB blocks are clearly being mined by miners who haven't changed the default. in fact, i think the top 2 Chinese miners only recently changed their default to 1MB.
pt being, it's statistically unlikely that full blocks today represent the magical level of "large" blocks that Satoshi set 6 yrs ago. the problems we are having with the forks are a result of the defensive tactics being taken from those full blocks.
have the Chinese miners given you a technical reason why they're SPV'ing?