Well, that's an oversimplification. For a fully featured ILC, there is a finite limit on how small it can be while maintaining the same degree of sealing. Each rotating shaft on a dial, each button, gaskets around screens, body seals, etc, all must be sized so that they are reliable and provide good sealing. You simply couldn't do that in a body that was, say, half the size of an E-M1. Take for example a rotating dial. If you want to waterproof that dial, it takes a cylinder around the shaft wide enough to accommodate an o-ring. When you start putting buttons and dials side-by-side, you end up with a real estate problem that prevents designing bodies that are ever smaller.
The OM-D E-M1 is every bit as sealed as my E-1 was but, to be honest, I wouldn't want a body any smaller or it would just be hard to use.
By the way, I'm an ocean engineer and we deal with the same issue on larger hardware all the time. It's just a tradeoff.
Chuck