I picture the Drunkard's path block as having two "square" sides (not interrupted by seams), and two "circle" sides (where the edges of the quarter circle meet the sides). If you want your circles to stay perfectly round, you will have to cut them down only on the square sides - if you cut off part of the circles to reduce the block size, you won't have full quarter-circle arcs anymore, and so you will get little points where the blocks meet. I don't know if a 1" reduction will cause a visible problem, but it might. I would want to play with it a bit before I invested in the dies.
This would be a lot clearer with pictures, but I don't have time to draw any until after work. Maybe picture this (or even actually do it!): Cut out a 6" square of paper, and make a mark in the middle of two adjacent sides. Take a saucer and a big dinner plate. Connect the marks by tracing the edge of the saucer - you will get a reasonable Drunkard's path black. Now connect the points using the dinner plate. The line will be less curved, and won't meet the edges of the paper square on. The dinner plate will cause the little points where the blocks meet, like cutting down a larger block would.