Senior Member
Join Date: Aug 2010
Location: Madison, WI
Posts: 11,177
Bikes: 1961 Ideor, 1966 Perfekt 3 Speed AB Hub, 1994 Bridgestone MB-6, 2006 Airnimal Joey, 2009 Thorn Sherpa, 2013 Thorn Nomad MkII, 2015 VO Pass Hunter, 2017 Lynskey Backroad, 2017 Raleigh Gran Prix, 1980s Bianchi Mixte on a trainer. Others are now gone.
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By squirrely, I assume you mean does not hold a straight line as well. Generally long trail bikes hold a straight line quite well. Short trail bikes, not so much. Trail is the result of frame and fork geometry, and to a lessor degree wheel radius. My rando bike has a shorter trail, when I turn my head round to look behind at traffic, it is much more likely to deviate from the direction I was riding than my touring bikes that have longer trail.
That said, a larger and heavier wheel has more gyroscopic effect which does add a bit of stability to a wheel. My small wheel folding bike can steer quite easily, does not hold a straight line very well, smaller wheel has less gyroscopic effect. My road bike also has a very light weight wheel compared to my touring wheels, less weight and less gyroscopic effect.
I have two 26 inch touring bikes and a 700c touring bike. I also have some other 700c bikes that are not for touring. None of my 26 touring bikes have toe overlap. All of my 700c bikes with fenders have toe overlap. The bikes range in size from 58 to 61 cm seat tube length, thus all much larger than your size.
If your tires on the bike are planned to be at least 35mm wide, it is easy to find the wider 26 inch and also 700c tires. No disadvantage to either. That said, narrow 26 inch tires that are narrower than 40mm are less common in bike shops, so if you wanted to have skinny tires, 700c has some advantage.