In Sonic's Universe, pretty much, yeah. I mean just because Sonic is fast that doesn't mean he must have longer legs than everyone else to run fast. Shadow doesn't needed be buff when he was lifting cars and shit in his game.
Knuckles always had this all strength in "small package". That was kind of his charm ,now it's kind of weird.
Knuckles was never really a small package as you put it, he's always had an exceptionally large torso(i'd say muscular but you know how the sonic style is). Just Fanart like this and parts of the comic show that his torso didn't really match his arms. I like his new design because it kind of balanced that out. Either way both styles fit.
I like, though I don't know if it was intentional or not, that you actually de-beefed him a bit. He looks a little less buff than in the official artwork, which in my opinion is good, because he does look a bit too triangular in the game. However, I do think it makes sense he is buff, as he has always been the brawler type.