There's also the Sonic RPG that needs to come out soon too, but I suppose that's more of a side game than anything else.
Sonic Chronicles: The Dark Brotherhood, and yes the game is a DS game so its only 50-100MB. That and the game was completed a couple of months ago, due to be released 5th of September here in the UK.
I doubt it took up that much of their resources.
When the Mass Effect team broke up after the 360 game shipped, they were divided into three teams - Dragon Ages, Sonic and "Project X", which apparently is not Mass Effect 2. There may be a small team working on DLC, but given that we haven't seen or heard anything since "Bring Down the Sky", I kind of wonder.
If Sonic is done, I'm guessing that those people might have been reassigned to Mass Effect 2 pre-production... but if they're serious about Dragon Age being a 2009 game, they're going to need to dump people there as well.
As for the size of a game or the platform, sure, they don't need a huge team to make a DS game, but it's not like they can crap out something (Although, given some of the 3rd party DS software out there, I suppose they could).
As for the difficulty of Mass Effect 1:
1) Set it to casual. You get the achievements anyway, and the next achievement for difficulty can only be "achieved" after you beat the game once anyway.
2) Play a soldier or vanguard. Those are basically the newbie classes and while you technically face more Geth than you do "carbon based lifeforms", the engineer powers just suck.
3) If you're already doing the above - use the cover system. Yeah, it's mostly understated, but it really can help. Invest in lift and medic for you or your AI characters. Medic is one of the few skills that is cumulative throughout your entire party, so each character's skill is added up before the health bonus is applied.
As for Mass Effect 2:
The advantage to BioWare's fairly simplistic white/black method of storytelling means that they can probably get away with doing something vague in the next game, assuming that save files do not contain anything about the choices made in the first game. One simple way to do it is to just dump you into the Traverse and not let you travel in the familiar part of the galaxy and then refer to past events in extreme generalities.
If the save files do contain the outcomes for the multitude of choices, then they could just build some dialog around those choices.
Speaking of which, it'd be kind of cool if Mass Effect 2 did the Rock Band 2 and somehow ported the assets from 1 to 2 so that you could go back and at least go to the planets from the first game in the second game. Not going to happen, but it'd be cool.