Yeah a smaller carb will kill some top end power but usually the rest of the power curve is the same and sometimes the lower end of the power curve will even be higher with a smaller carb. So it is quite possible for a car with a smaller car to run just as quick if not quicker with the smaller carb. It really all depends on the torque curve and how well the car hooks up.

Nothing wrong with using the smaller carb, especially if the car runs better with it. Pulling some timing is probably a good way to slow the car down but you'll want to be careful that you don't cause any problems with the retarded timing. The engine will build more heat with retarded timing so keep an eye on the gauges.