Meh, 1206s aren't much smaller than 1/4W resistors already, and I've never met anyone who had a problem tacking them down.
Personally, I go with 0805 and 0603. Below 0603, it gets much too tedious to do by hand, plus you'll definitely need magnification to inspect it (and if your eyes aren't so great, you'll need magnification while working, too).
Even when I'm using THT parts, I tend to surface mount them (dead-bug or Manhattan style construction). It's so much easier than drilling holes in a one-off proto, or wiring up perfboard, constantly flipping it around to make sure you're connecting things right. Everything is on top and in view.
If you don't feel that buying SMT parts is a good idea (maybe you're playing with THT parts on the breadboard, so you've already got stock of those), that's fair, too.
Tim