Going purely on what you've said in your OP:
I'm not sure there's much in your preference for how small and compact the T1 is over the KT - the latter is a bit heavier but they are the same width and there's just 10mm of a difference in length?
In terms of reading experience they will be very similar, except the T1 has the option of page turn buttons (even if they aren't as well placed as the side buttons on older Kindles). Things like the menus, pictures for book covers etc are pretty minimal, as you'll spend far more time reading than picking a book from the menu (incidentally, I like the covers too, but when it comes down to it, I find I prefer being able to see more of my books listed as they are just as the titles on the Kindle).
I'd second what vxf says about if you already use and enjoy the Amazon ecosystem you'd be as well sticking with that, however, it sounds like you really would prefer the PRS-T1.
Really what it comes down to is which is more important to you, the ease of buying and downloading books onto your ereader, or how your ereader looks and feels.