Does or should the listening distance determine the speaker used?
You should definitely take distance into consideration, but keep in mind that unless your room is cavernous and you sit very far away, most center channels can be adjusted to play at a level that matches the other speakers in your system. Owner that have upgraded from Axiom's smaller center channels (e.g. VP150) to the VP160 or VP180 have reported noticeable improvements in punch and clarity, as well as better tonal matching to their M60s or M80s.
Yes and no, if you have a very large room and sit far away, your speakers will be required to play at louder volumes which is generally easier to do with larger speakers, but with the proliferation of subwoofers larger isn't the only way. It is actually more a matter of speaker efficency, than size; this efficiency is usually listed in a speaker's specs as sensitivity ie. 95db @ 1m with 1watt. This means the speaker is capable of producing 95 db with 1 watt of power when sitting 1 meter away. The more efficient the speaker is the less power it requires to play louder.