The problem, such as I intuit it, is that commercial ships cannot be small, because commercial engines cannot be small, and commercial ships cannot be relatively fast, because commercial engines have low EP per ton. The latter also limits the pulling power of Tugs.
I disagree that this is a problem; I think these are fair and valid tradeoffs for the lack of maintenance requirement.
--- If Commercial Engines get no fuel efficiency bonus above and beyond the typical, then that's fine, but the point is that a Commercial Engine can be used Commercial-y. It is valid for no maintenance designs. The Military Engine with 200% doesn't have this ability, while the commercial engine does, but trades away the power and instead gives that mass over to the ability to be No Maintenance when on a Commercial Design. Using Commercial Engines on a Military Ship thus have no utility anymore, since the No Maintenance is wasted.
--- I failed to communicate this, and I'm sorry for that, but my assumption was the Engine Size tech was still the upper limit for what you could choose as a base. So a 200% Military Engine that was 1,250 tons would indeed become a 100% Commercial Engine of 2,500 Tons. I deemed that mostly irrelevant since it confers no advantage, however with consideration of larger engines being more fuel efficient than smaller per hullsize that might not actually be the case.
There is actually a significant advantage, not so much because of the larger engines possible (although I do think it is a problem still), but because a ship with effectively military engines will appear to the sensors of other races to have commercial engines. Thus as long as I have the necessary techs (and engine boost tech is both cheap and necessary for any fleet which uses missiles, so this is quite probable), I have no reason to ever design, say, a 100% military engine when I could instead design a "200% + commercial" engine of half the size, with exactly the same performance characteristics
and the ability to prevent my opponents from identifying which of my ship classes are military or commercial... currently to undertake such a deception requires significant sacrifice of efficiency.
We can discuss separately if it makes sense to have this distinction from sensor readings (personally I think it makes not much sense), but as it is the current game mechanic we have to consider such a change in light of that mechanic.
Another significant ramification, not yet discussed, is that commercial jump engines become able to jump military ships with military-speed engines. This is a significant point of balance (as always, in the Aurora sense of balance), because even though commercial jump drives are somewhat larger they are
much cheaper to build and maintain.
--- This streamlines the how and why, since we can assume the how is that whatever is being used to make the Military one go 200% is halved or being used to the effect of making a smaller one at 100%, while using that space saved to add the Magic Doesn't Break Smoke that makes Commercial Engines do their thing. Likewise, the arbitrary engine size and power limit is no longer an arbitrary limit, but a flexible one with a simple toggle that asks the player: "Is this for a Warship or Not?" Another problem it solves is not being able to make tiny Commercial Ships... or even FAC sized ones, to be honest. Currently every Commercial ship MUST exceed 1,250 Tons... before Crew Quarters, Fuel and the lot.
Again I do not think this is a problem, although I do concede that there is a certain design space which is closed off (as you expand on following this block).
That said, I am not on principle opposed to enabling small commercial craft, but it needs to be done carefully or a design space for interesting decisions can be lost as well. For example, if 500-ton commercial colony ships or tankers are possible, that's well and good, but does that also enable constructing commercial scouts in the same tonnage range? In many of my campaigns I make regular use of 250-ton scouts based from boat bays, but if those scouts are 'commercial' I no longer need to provide boat bays to transport them as I can just build several dozen of them and scatter them everywhere even without fleet support.
Whereas under the current rules, I can still access this maintenance-free ship-based scouting and monitoring capability, if I want it, but there is a tradeoff as such a ship will be >1,250 tons in size - I have done exactly this in my Duranium Legion AAR as a matter of fact. Thus there is a place for both types of designs as each has important tradeoffs and capabilities. This is the kind of interesting decision-making space the current commercial/military mechanic creates quite effectively, and which I am very hesitant to give up just for tanker FACs (to phrase a bit glibly).
If it was not for considerations like this, I would honestly be fine with just saying any engine with 0.5x or lower boost is commercial (unless it has thermal reduction, of course). However, in practice the implications for small-craft design are not those which I would be happy with, so I prefer the current system.
--- Hell, while we're at it, why not do the same for sensors? Give it a dropdown to tag it as Commercial, same size, but half the strength... but putting it on a ship doesn't make it military?
Because frelloff huge, maintenance-free sensor platforms or ships are a really bad idea for Aurora gameplay.
Verisimilitude is always nice. 
Not always, there is such a thing as trying to be too realistic at the cost of good gameplay. Every game with such a level of detail must be careful not to cross such a line lest we end up requiring Italian spaceships to carry 25% more water to boil their pasta.
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Overall, to sum up a bit my perspective: an arbitrary commercial vs. military divide is necessary for Aurora's style of gameplay. The current rule of 50% boost and size >= 25 may not cover every case someone might wish for, but it is
simple enough to be easily understood as a rule (it is literally documented in the component design screen, it is not arcane hidden knowledge) and it creates interesting design decisions which is a fundamental imperative of Aurora's gameplay.
In my mind, any suggestion to change the commercial vs. military mechanics, whether for engines or more generally, needs to demonstrate not that it is "more realistic" but that it preserves and creates
interesting gameplay decisions in line with the current mechanics.
