Hi,
I'm shorter than you (5' even , rounding up ), and I now ride a bike with 650s, after starting out with a bike with 700s. The 700-wheeled bike was too large for me, so take that into account when reading the rest of my reply.

When I was looking for my current bike, I decided early on to go for smaller wheels - either 650 or the 24/700 Terry combination - because the frame geometry could be closer to "normal." I didn't have enough personal experience to know for sure that this would be better for me, but it made sense to me that the way to build a smaller bike is to scale down everything if possible, not just a smaller frame on normal-sized wheels.

My experience so far: since the 650 bike fits me much better, I became immediately faster, and I just felt much more comfortable with the bike from the start. So I think most of my benefits come from the proper sizing. However, I can report what seems to be a clear difference between the two bikes - the 700 was a "plusher" ride, whereas on the 650 I feel all the bumps in the road much more even with a carbon fork, which I didn't have on the 700 bike. (Both bikes are steel.) My brother is now planning to switch from 650 to 700, and he's commented that the 700 bikes that he's taken on test rides feel so much better to him. For him, I think again it's a combination of better fit and the 700 wheels/tires giving a smoother ride.

Another factor in the smoothness comparison is that the most common 650 tire size out there seems to be 650/23, versus the common size of 700/25. There are a few brands that make 650/25, and there's even one brand of 650/28 - I can't comment on how much difference that would make, because I haven't tried anything besides 650/23 yet.

Finally, I should say that the smoothness difference was most noticeable on my first ride - I was somewhat shocked after running over cracks in the road for the first time on my new bike. I've gotten used to the difference in road feel, however, and so now I don't even think about it anymore. Kind of like going from a minivan to a sports car?

Good luck with your choice!