"Having dealt with all kinds of spaces to shoot in, I can say that having to deal with a small space to shoot portraits is one of my worst fears. (This is why I conquered the basement in our new house).
Seeing the huge studios of folks like Zack Arias or Scott Kelby can have a paralyzing effect and send you on a the road to Im-never-gonna-make-anything-good-with-my-space trip.
A few weeks ago I started talking with photographer Matthew Shalaby who is doing some amazing work with a very confined space. Actually Matthew has been shooting for a very short time and not only dealing with the lack of a "decent" studio (shoots in a 8 feet by 10 feet room) but also the lack of a crew. So most of his work is done in a TFx (Time For Prints/CD/Other) form.
Matthew makes some great use of the inverse square law and pulls the lighting modifiers very close to his models. Which maximizes the available space, but also makes some very soft light."