I'll respectfully disagree. Sure, full boils are better, but they also require space, equipment, chilling capacity, etc, etc, that just aren't feasible sometimes. For the longest time I brewed in a townhouse where I would partial mash half the batch, boil 2.5 gallons in my 3 gal pot, then do a late extract addition and dilute up to batch size (5.25 gal) in the fermenter. Now that I've moved I've switched to full boils, but I haven't seen any improvement just due to switching to full boils. Most of my desire was to get into all-grain batches without any extract, not just to boil more water.
There are certainly ways to improve upon some of the smaller boils though. A lot of time they get a bad rap simply because that is what most people start off with, back when we were still following the LHBS instructions like the letter of law and trying to pump out quick batches. You're correct that higher gravity in the boil kettle (like if you added all of the extract at the start) will decrease hop utilization. Adding some of the extract later is an excellent way to bring your boil gravity more into line with the final gravity. Beersmith even has an option to indicate extract as a late addition. I would plan on trying to match the boil gravity to the final gravity. For instance, if you're able to boil 1.6 gal, that's about a third of a 5 gal batch. I'd plan on adding a third of the extract at the start, then the rest right before the end.
Since extract has essentially been boiled once already (when it was made) there's no need to boil it again other than to sterilize it. In fact, boil the entire amount of extract can lead to an increase in color, so a late addition will also help to keep your colors lower for your paler beers. If you're brewing all extract batches, the boil is essentially all about hop additions.
There are a few things to keep in mind when doing late extract additions. First, you want to boil the extract long enough to sterilize it (I generally aimed for 15 min before the end of the boil). When you add the extract, you'll want to pull it of the heat. Both LME and DME have a habit of sinking to the bottom of the pot, where the heat can caramelize or burn them. So pull the pot off the heat, then stir the extract in real well before putting it back to boiling. This is also going to delay the boil a bit while it warms back up. Any additions made before the extract is added will get a little more time in the boil. The 60 min addition isn't much to worry about since 60 min vs 70 min doesn't change much. But if you've got a 15 or 20 min addition, plan on doing the extract before them. You'll especially want to get them in before aroma additions around 5 min or so, otherwise all that aroma will be gone.
Also, double check the recipes first using Beersmith, especially if you do kits from anywhere. If they don't specify a late extract addition, check the IBUs to make sure you're coming out close to the projected number. Late additions actually make using online recipes much easier, because you can assume a similar hop utilization to a full boil recipe.
Finally, not to sound snarky, but don't worry about dilute your hop character. Most of the hop oils are in such low concentration, they never near a point of saturation that we'll have to worry about. The only thing that may happen is that you may reach a level of iso-alpha acid saturation (generally around 100-120 IBU). Does that mean that you won't be able to partial boil an IBU monster like pliny (100+IBUs)? Yeah, at least not easily. But 95% (at least) of your batches will turn out just fine this way, or potentially even better than before.