My house is also very small, and I am a hoarder. I guess I have come to terms with having to work with what I have .... since I can not afford to rent (or heat) a bigger place to live.
You could say yes, the house is too small, but since this is what you have to work with, do you want to live like this? really? and like the show Hoarders does so well, help her recognize the consequences of her hoarding. Until the negatives outweigh the positives, change is only minimal.
Hope this helps, hang in there and take comfort in the love that is there between you. No one is perfect, but love can help.