I'm running out of code space on my 328p
If your running low on code space then you have probably done something wrong. Post a 300 or 400 line sample and we can take a look. On a micro such as these AVRs 32k is about a 1000 man hours work!.
Is the 1280 (or 2560) energy efficient enough to compete with the arm chip / be comparable to the 328?
Every thing you need to work this out is in the data sheet of the chip(s) you want to use. Only you can define what you mean by "compete".