While shopping at Wal-Mart the other day, I came across a little digital camera that was advertised as being "keychain-sized". The resolution and number of pictures is equivalent to what the camera I used in this project but it is about an eighth the size and uses only one AAA battery instead of three. Using this for kite-based photography would allow for flights in lower wind speeds. There a couple of issues that I can think of with using this camera instead of the larger one. The first is that the power on-board the camera would only be 1.5v instead of 4.5v, so you would need another source of power for the 555 timer, perhaps two 3v lithium watch batteries. The other concern I would have is that it might be too light and get tossed around more easily in the wind, but I'm sure there's a way that this could be alleviated.
I've looked around on Wal-Mart's website, but I can't find the camera that I saw, but here's a similar one that I found on another site.