It's not a binary choice. Of course, you always have local versions of republicans and democrats. Of course, it can lead to unstability (Italy, pre-1958 France) with an undue amount of power for smaller parties.
But the way it actually works is how proportional the vote is, eg, what minimum does a party need to get an MP seat. If you set the minimum too high, all the smaller parties are excluded, if it's too low, the lunatics run the asylum. You have to have the right balance, which will also depend on the political landscape in your country (eg, the more proportional Danish system seems to work OK given the nation's culture of political consensus).