My philosophy on re-potting is the only reason for the smaller soil volume is so you can better control moisture and temperature during the critical sprouting phase. Once they have popped and the first true leaves form, there is no reason not to re-pot. Think about what happens in the wild, the seedling sprouts and sends it's root down as far and as fast as it can to get to the soil area that stays damp. If you dig up a baby pepper that has been direct sown in the ground, you might see a 1" tall above ground plant with a 6" plus tap root. I don't see any reason why you should interfere with the natural tendency of the pepper to dig its root deep.