Can one shred but still improvise? Can one shred with small hands? Is shredding a way to impress people rather than making music?
Yes, absolutely, only if you make it that way.
Yes, yes, no.
(Most people are not impressed with shred, just look at record sales.)
These are some pretty small hands:
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I want to do it in a Strat.
Are you concerned about scale length? Both of the guitars shown have similar scale lengths to strats:
- Fender Stratocaster scale length: 25.5"
- Ibanez RG8540ZD scale length: 25.5"
- Vigier Excalibur scale length: 25.6"
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The hands keep getting smaller 
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Kis are more flexible than older adults
What will your excuse be this time?
Django famously only had two working fingers for lead playing but could absolutely rip!
You can keep putting up barriers and making excuses or you can put in the hard work and have it pay off! If you REALLY want to achieve this level of playing then you will find a way 
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Science agrees with you: More with less: A comparative kinematical analysis of Django Reinhardt's adaptations to hand injury - PubMed
This is a good summary of both Django and Tony Iommi’s experience: Fiery fingerwork: Django Reinhardt, Tony Iommi and the accidents that revolutionized guitar playing | The Muser
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The guy with phocomelia in the vid above should say enough. I’m sure you can find someone somewhere doing that with their feet.
I actually did see a guy shredding with his feet a while ago on instagram. I can’t remember who it was though. He had no hands so that’s just how he plays. Impressive stuff.
And there it is. I’m not surprised in the least by that.
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