I can definitely see your point. There would need to be a huge amount of land, but I think they could use that to make empires even more interesting. Imagine have one massive map made of pieces of China, Japan, and Orochi's creation. The task of conquering the whole thing would be monumental, and it would likely take a lot of time and above average strategy. Now, if designed properly, the map could be divided into maybe 2 or 3 smaller maps for what we would now call a standard length game. I honestly think it's possible. You might be right in that the data requirements would be so high it would have to be a PS3 exclusive or wait till the next generation of consoles. I still think it could be done and done well.
Another thought is that they could reduce the number of "rulers." Seeing as Orochi 1 and 2 have happened, it could be that some of the other major rulers have united under a single banner. It could be narrowed to Liu Bei, Cao Cao, & Sun Jian for China. Oda Nobunaga, Ieyasu Tokugawa, and Hideyoshi Toyotomi for Japan. Then you would just need Orochi and maybe have a spot for the mystics like Nu Wa, Fu Xi, and Taigong Wang.
In any case, I'd be happy with just about anything Koei throws at me. And, if that ever includes an Orochi: Empires, I'll think I've died and gone to heaven.