See the G+ outrage lately: there are three articles about that at the top of the frontpage that say exactly the same thing with exactly the same comments. It's reddit/4chan tier "pitchforking".
The problem seems to be that the community is growing quickly and as a consequence the upvoted articles are those who cater to the lowest common denominator and it keeps getting lower. It's a problem all successful communities face.
The usual solution might be to migrate towards a smaller community as you propose, but the problem then is that you have to rebuild everything from scratch over and over again.
IMO a simpler solution would be to make a "meta-HN" which would just add an other layer of moderation on top of the existing HN:
- Remove all "drama/politics" entries
- Merge entries about the same topic under a single item.
Then just link to the usual HN comment threads. I find the quality of comments usually reflects the quality of the article so I think it would work well for me. No need to rebuild everything from scratch and rebuild the community.
The HN you once liked is still there, it's just getting increasingly buried it low-relevance contents.