I would recommend the 5x7 - You can get an additional embroidery hoop pack (4 hoops included) which includes a really small hoop, a 4x4 hoop, an additional 5x7 and a multi-positional 5x12 hoop for $100. I have the Brother SE350 with the 4x4 - and while I am keeping it, this year I also wanted and bought the PE770 (just delivered) because I wanted the 5x7 stitch capability - and I only had so much money to spend. You can use the 4x4 "hoop" for smaller projects - - but I would definitely recommend you get a machine with 5x7 stitch capabilities - then you aren't so limited. More and more online designs are geared for the 5x7 or even larger these days. (Just my 3 cents) :-)
Marysewfun