I'm not a native Russian speaker, but I found an English translation of the entire novel on the Internet, and here is how your excerpt is translated there:
They used to say in the market, and your mamma too, with great lack of delicacy, set off telling me that her hair was like a mat on her head, and that she was short of five foot by a wee bit. Why talk of a wee bit while she might have said 'a little bit,' like everyone else? She wanted to make it touching, a regular peasant's feeling. Can a Russian peasant be said to feel, in comparison with an educated man? He can't be said to have feeling at all, in his ignorance. From my childhood up when I hear 'a wee bit,' I am ready to burst with rage. I hate all Russia, Marya Kondratyevna."
Sure, the translation isn't precise, and my Russian teacher would definitely give zero points for such a translation, but it at least gives an idea as to what Smerdyakov is complaining about.
Let me make a couple of remarks about the above translation.
To begin with, the phrase
так точно на стену бы бросился
is interpreted there as I am ready to burst with rage, whilst the literal meaning is rather I'd certainly smash myself against a wall. Is it an old idiomatic way of expressing the readiness to burst with rage? I don't know, but a quick search in Google suggests that the phrase is used rather to express desperation, at least in modern Russian.
Second, I was surprised that the preposition против, whose main meaning in modern Russian is against, is interpreted there as in comparison with. Such usage of против seems to be highly uncommon in modern Russian, to say the least. Before I found the English translation of the novel, I interpreted that sentence as follows: Can a Russian peasant have a feeling against an educated man? This made little sense in the context, so I was puzzled. The translator seems to have gotten the sentence right, as his interpretation of that sentence at least makes some sense in the context. Anyway, the style is highly old-fashioned and clumsy, so you can never be sure.
Now let me explain how I understand the pronunciation issue you are asking about. The issue is about the phrase с малым, which means with an additional bit. That is,
росту была всего двух аршин с малым
means, "She was as short as just two arshins and an additional bit." An arshin is an old measure of length, commonly believed to be of Turkish origin, and is about 27 inches long. Pronouncing с малым (s malym) as с малыим (s malyeem) makes the whole thing more touching or emotional, because the last vowel gets lengthened. What Smerdyakov doesn't like is when peasants talk in this way, because he believes that uneducated people like peasants can't really have true feelings, in the first place.
If I were to translate the excerpt into English, I would do my best to translate as accurately as possible and, in particular, would come up with something like,
... that she was as short as just two arshins and a beeeet. Why say beeeet whilst she might have said bit just as people normally do? ...
Note an important difference between my interpretation and the translation found by me on the Internet. My interpretation is that the woman was two arshins AND an additional bit, whilst the translation found by me on the Internet says that the woman was SHORT OF five feet BY a bit (i.e., five feet minus a bit).
Overall, I find Smerdyakov's way of expressing thoughts in this excerpt to be very chaotic and careless, and I find it ironic that he himself doesn't speak like an educated man, although I'm unsure whether Dostoevsky meant to make such irony.
UPDATE: I want to clarify something in order to address the OP's comment that says, "I'm still wondering though if Smerdyakov refers to the imitation of a peasant accent or to Old Slavonic ... ." Neither of those. Smerdyakov refers to the same thing as the one described by Maxim Gorky, another Russian writer:
-- Эх вы-и! - часто восклицал он; долгий звук «и-и» всегда вызывал у меня скучное, зябкое чувство.
Here is a translation found by me on the Internet:
"Akh, you—u," he would often exclaim, and the sound of that elongated "ou—u" never failed to stir in me a feeling of cold gloom.
It's neither an accent nor Old Slavonic, but a touching manner of talking, a talking style in which vowels are occasionally elongated to emotionally touch the communication recipient - с малы-им, эх вы-и, etc. It's a kind of speaking from one's heart. It's about loading vowels with emotions. And, as perfectly put by Gorky, such a manner of talking does stir feelings.
What Smerdyakov hates is that Russian peasants, whom he considers to be incapable of true feelings because of their ignorance, try to talk emotionally, in the way described above. In other words, he hates to hear naive attempts by uneducated people to express their primitive emotions by manipulating vowels.