Personally, I’d choose the larger school. If they have a good reputation and are a larger research institution, you will likely have access to better internships/residencies and other such programs. Never underestimate the value of networking either- when it’s time to find a job, professors from well known schools tend to know a lot of important people and can help you to make good connections. If the field really is getting saturated, you’ll need that.
I don’t think that the “no set office hours” thing is necessarily a plus. Professors don’t hang out all day in their offices waiting for students to show up- if there are no office hours, you’ll need to contact them to set up an appointment, and you can do that anyway at the larger institution if you can’t find time during regular office hours.
As for the research thing, I do tend to agree that sometimes quality of education suffers for undergrads, but not generally for graduate students.
Then there is the money…$40,000 (likely more due to yearly tuition increases) is not insignificant. Especially if you have any plans to marry and start a family.
However- if you think you’re likely to hate the larger school enough to drop out, then I’d say go for the program you’re most likely to stick with. Otherwise, I think the larger school is a wiser option.