Digital is not always better. Digital modes have been created for amateur radio use; the amateur radio VHF 2m band (144–148 MHz) is very similar to the VHF aircraft band (108–137 MHz). I have a radio that uses both FM and a digital mode on the amateur 2m band. Here are some notable differences between FM and digital:
- When the signals are strong, the sound quality of FM is slightly better because there are no digital artifacts
- When the signals are weak, digital sounds better because there is no static
- When the signals are very weak, FM is definitely better because digital either degenerates into unintelligible loud tones ("sounds like R2D2" is what hams say) or is not decoded at all, but analog signals can still be understood with difficulty
- Only one digital signal should be transmitted at a time on a channel; if two signals are there at the same time, the stronger signal might get through, but more likely neither signal will get through
The reason that old-fashioned AM has been kept for all these years is that if two signals are there at the same time, both signals can be heard and understood (perhaps with difficulty). This is a significant benefit; a quieter signal, perhaps from an aircraft further away from the airport, has a much better chance of breaking through to be heard on a busy frequency. FM and digital modes can't offer that benefit.
Digital radios are not intrinsically more capable than analog radios given the same power levels. Digital radios can use slightly less bandwidth for the same audio quality, packing more channels into a band, but that's not very relevant for aviation.
The antenna size varies by the frequency, regardless of whether the radio is analog or digital: the higher the frequency, the smaller the antenna. Switching to digital wouldn't make the antennas any smaller, unless the frequency band changes also. A higher frequency band would make the antennas smaller, but finding a new large frequency band for aviation use worldwide would be very difficult.