I'm with Amber -- I think he's embarrassed/afraid your family will judge him because you've gone from a VERY large house to a smaller one. Particularly if the residence change has had something to do with his job or earning situation. My husband would probably do the same thing. You can mess with him a lot of ways, but don't impugn his ability to provide for his family or make sure they feel secure or have everything they need. (The problem is, some husbands get materialistic about what a 'need' is. I'm going to have a hard time convincing my husband we don't 'need' over 4000 sqft next time we buy a house.)
Anyway, I can't fault my husband for that, because it's the same when he's invited a bunch of people over to our house and I haven't had time to clean -- it doesn't matter what people really think, I feel like they're going to judge me/think I'm a bad wife and mother if my house doesn't look nice. It's the male/female version of the same insecurity, I guess. And because it's not based on anything rational, I really don't know how you address it with him except head-on and remind him no one's going to judge him and he's just going to have to put a bold face on it.
As far as space, yes, make room for the party to move outside if you can, and yes, get an extra table and chairs if you need 'em -- but I offer you this sad story from my past :-) : Our first Thanksgiving in this (less than 1700 sqft) house was our first to have my husband's whole family over. Planning for 15 bodies total. We had no dining table and barely enough chairs in the entire house. I thought back to the glorious Thanksgivings that my great-aunt, who was Martha before Martha was Martha, used to put on when I was a kid, and freaked out. It's Thanksgiving dinner, of course we must all eat together at a large table! So I went out and RENTED one. I think I even got out my nice china, just to have enough plates. Nice tablecloth. All the nice serving bowls. I'm thinking I drew the line at cloth napkins.
And after all that, guess how many people sat down and ate at the table? FIVE. Just long enough to scarf down their food. Some of his family were so late that we didn't start eating until after Cowboy kickoff (and I'm a big fan, I'm sitting here in my Cowboys sweatshirt as I type, so I wasn't resentful of having the game on), and so all the men and half the women want to sit in the living room where they can see the TV. They're all over the couch, pulled in half the chairs from the underused table, sitting on the stairs... (snort) Should've rented TV trays!
Point is, my husband told me I was overdoing it and that his family wouldn't care. I should've listened (and have not made that mistake since, BTW, in regard to holiday stuff). But I had that vision of "what Thanksgiving should be" in my head... So the question is, what vision is in your husband's head that he's fighting so hard over?