Bingo to the above post (internet is slow atm darnit)
In more detail, the internet download has NO distribution costs at all, no shipping, no SMC, no packaging (okay, a small bandwidth charge, neglible). If you've found GP32 games available to buy for $5 on SMC (somewhere other than JoyGP or MegaGP) let us all know!
As to the other part of your question, I believe some games are less than 8 meg, and most seem to be less than 16, 32 meg at the top. (Does anyone who has ASR want to confirm its size, I think that would be one of the largest). Beyond keeping the size of the game as small as possible to reduce media costs, companies that produce the game will get a better price per SMC than you or I (even through outlet centers on the internet) as they buy massive quantities in bulk.
If you're worried that means the games have lousy visuals (graphics), just remember that as you stated, GBA games are 4 meg or 8 meg, no more. And when comparing to PC games of the huge size, graphics there have to look good at high resolutions... the GP32 is fixed at 320x240, so even a full screen of great images isn't too large.