That's putting all of our infrastructure in a single package, and I have to believe that the navigation capabilities from a single satellite won't be as good as you'd get from a constellation.

All space system designs are a series of compromises flying in close formation. While microsats (at least, compared to a large satellite like MTO) wouldn't have all of the power and bandwidth that MTO will have, they have the virtue of system redundancy and graceful degradation. They would also offer better coverage for multiple missions.

By microsats, I'm not talking about shoebox sized vehicles. I'm thinking in terms of perhaps 3 or 4 smaller satellites carried on a common bus and launched by a single launcher. The common bus would carry the mission equipment needed for the phase between launch and orbital insertion (primarily propulsion and navigation equipment). Normally, aerobraking wouldn't be an option for such a high orbit, but the technique might still be useful. You could perhaps use thrusters for the initial orbital insertion into a highly eliptical orbit, then use aerobraking to lower the orbit, then use thrusters to circularize. TT&C could be handled by the satellite payloads themselves (providing multiple redundancy), allowing the bus design to be kept simple. Once the bus and satellites are in the desired orbit, you'd detach the satellites and maneuver each one into the desired orbital position. This is a technique that has been successfully used with multiple satellite launches for years. Since you're building multiple copies of identical vehicles, the per-unit costs can lower due to economies of scale and spreading out the R&D costs.

Small satellites don't have to be weak or unsophisticated. They could have crosslink capabilities (like Milstar and Iridium), perhaps using lasers. That would allow continuous coverage. The sizes of space rated electronics have shrunken dramatically in the past 10 years. Last year, I saw the mockup of an experimental microsat that is scheduled for launch sometime in the next year. It's mission is to orbit for a year and perform independent rendevous with multiple targets with the ability to image the targets. The TT&C subsystem was something like 300 grams, the imaging subsystem wasn't much more, and it carried a LADIR, GPS navigation, computers, and a lot of fuel. The total satellite mass was something like 100 KG, if memory serves. That's a lot of capability in a small package.