Are you sure that there's no tugging or pulling? Often, when the stitch length gets small, it's because the quilt is caught up somewhere. Even with a walking foot, your machine can't pull the entire quilt thru all by itself. You need to make sure that the section just stitched, and the next section to be stitched is loose. Stitch a section, maybe 6 inches or so. Stop adjust the bulk, then do the next section. As far as what to do about the finished portion, I think it's just fine as it is!