"Also, the Canon's smaller photosites make it slightly more susceptable to diffraction so small apertures needed for sunball shots damage its IQ a bit more"
This is going around a bit, but the Canon forums I read seem to be pretty strong on the idea that the diffraction effects are never so large that you end up with less detail overall, its just a change in where it theoretically starts.
I think the idea is the increase in resolution from the extra MP always more than offsets the loss of resolution from the earlier diffraction, its more that the increasing diffraction results in diminishing returns from the increase in MP, it never overtakes it as such to the point where you're actually worse off overall. No doubt I will be corrected if thats incorrect.
Otara
Diffraction can limit overall detail. It will never make a 15MP camera inferior to a 12MP but it can make the difference in detail moot. Once that occurs, the 12MP camera may provide better overall image quality if the per-pixel quality is better. This is currently the case with the 50D compared to the 40D and D300 (or so say many testers). It is also the case, BTW, between the D3 and the D3x. If you open up a bit to preserve detail then the lower base ISO advantage will be lost.
If you are shooting at f/22 because the sunball is so bright, then the amount of detail between a 50D and D300 will be much less than if you were at f/5.6. A full frame, base ISO 100 camera (like a 5D2) is a better choice for sunball shots because it can tolerate another stop of aperture for a given level of detail. Too bad it doesn't have the 10-17. 
surely if I get a FF body and use lenes that would be same focal length as a 1.6/5 cropped body with shorter focal length then would this not be the same? not sure i understand why shooting FF is a lot more demanding?
Theoretically, you're right. Macro lenses adjusted for (lack of) crop factor will preserve angle of view but you will have a larger, heavier lens and in some cases you will lose a stop of light for autofocus. You will need more macro strobe power and you will lose the apparent magnification of the crop. You may also experience some vignetting. With wide angle you lose the fisheye zoom but gain some useful primes. All in all you have to work harder with FF.
The real reason FF is more demanding is that it is generally higher resolution and that makes the optics harder to cope with. If you consider the D700, though, that's not the case.
Example I have a Sigma 10-20 for cropped and 16-35mm for FF. With the same f number set on each I get more depth of field at a given angle of view with the 10-20. So in many situations where you want good depth of field (UW scenics, 1/2-1/2s etc) the result is achievable at larger apertures (ie smaller numbers) on a cropped sensor. In a way this cancels out the low light capabilities of the d700 to some degree.
Yes, it exactly does! Full frame has better high ISO performance but the sensor requires more light to expose because it is larger. All things equal, these cancel out (no free lunch). The D700 has the most efficient sensor currently available, though, so all things aren't equal. 
As has been said before here, it isn't clear why you'd upgrade to full frame without getting higher resolution. The D700 I'm sure is great and Alex enjoyed it when he tested it, but right now I'd go with the 5D2 if I weren't married to Nikon and wanted full frame.