The reason why most people use the higher voltage batteries is twofold:
1.To get a decent run time you need a whopping capacity battery on 2S, which aren't that easy to find. This is due to the equation Power=Current * Voltage.- E.G: 7.4V 5000mAh battery. Using the above formula, 5Ah * 7.4V = 37Wh.
- E.G 2: 18.5V 5000mAh battery. 18.5V * 5Ah = 92.5Wh
There is a lot more potential energy stored in the higher voltage pack of the same capacity. I use a 18.5V 6600mAh battery to get just over 20 minutes race time. This pack has 122.1Wh. So, as you can see, even the largest 1/10 battery has nowhere near enough power for long run times.
2. High current causes high resistance. Using the power equation again, say your set up has a maximum power output of 2000W (it is possible in 1/8!). At 7.4V that's 270A drawn, whilst at 14.8V that's 135A drawn. The higher current causes heat build up and higher resistance. Therefore more energy is wasted.
Your best bet would be to run two 2S packs in series for 14.8V. This keeps temperatures lower, extending run time, and ensures you don't need a high kV motor, where your choice is limited in larger sizes.
The reason why people wouldn't use 1/10 ESCs stems from above. If you are drawing 270A, no 1/10 ESC is capable of providing that. Some ESC manufacturers give ratings of like 1080A or something but that is absolute rubbish. The largest plane/heli ESCs peak at about 150A - and they've been doing brushless far longer than the car manufacturers.
Most 1/10 ESCs do, I would guess 60A continuous, and 100A burst, though this is quite generous. Try running that in 1/8 and you have a melted ESC.
I know at the Neo Adam Skelding was running an 1/10 LRP ESC, but this had many extra capacitors on it to take 14.8V, and therefore the current would be less.
As for motors, 1/10 motors are, as you say, 540 size. 1/8 motors aren't so clean cut. It all depends on the application, they are normally picked by the length, and the kV. Also, they can vary in diameter too. For a 36mm can, most people run 60/70mm in a Buggy, 70 or 80mm in a Truggy, and 80mm+ in a Monster Truck. Greater diameter means you don't need so much length.
A useful website for figuring stuff out is
http://www.scriptasylum.com/rc_speed/_top_speed.html