Small revisions to a function that increase the number of live variables to more than the set that are covered by the C extension mean that reference to THAT VARIABLE ONLY have to use a full size instruction. There is nothing sudden or dramatic.

Note that a number of a C instructions can in fact use all 32 registers. This includes stack pointer-relative loads and stores, load immediate ({-32..+31}), load upper immediate (4096 * {-32..+31}, add immediate and add immediate word ({-32..+31}), shift left logical immediate, register to register add, and register move.

It's certainly possible that another compressed encoding might do better using fewer opcode, and I've seen the suggestions. The main thing wrong with the standard one in my opinion is that it gives too much prominence to floating point code, having been developed to optimise for SPEC including SPECFP (no, not the Linux kernel or Dhrystone ... I have no idea where you got that from).

But anyway it does well, and the opcode space used is not excessive. If anything it's TOO SMALL. Thumb2 gets marginally better code size while using 7/8ths of the opcode space for the 16 bit instructions instead of RISC-V's 3/4.