So long as the two broken up funds are both index funds it won't matter. Index funds all work the same way so a million tiny funds will have the same effect as one large one.
Theoretically, yeah, but like a lot of tech companies, index funds are a high-ish fixed cost and low marginal cost business. The staff/IT/compliance/etc. costs to run a fund don't scale linearly with invested assets so functionally a million tiny funds would be much more expensive to operate (collectively) than one big one. You'd have to have somebody at each fund voting in all those shareholder votes, right?
I believe breakups would drive up the expense ratio which is why Bogle said that it would be damaging to individual investors. Part of the reason why Vanguard is so cheap to operate is because of its size contributing to economies of scale. You can see small variations in the expense ratios now (for example Fidelity is slightly higher cost than Vanguard across most apples to apples comparison funds) for this reason.