Re: Insecurity regarding (sorry)... penis size... ugh
Female interpretation: In fun banter you told her your approximate size. In the same window of time, the conversation went further to her telling you she likes/needs a larger man. I don't think this was accidental. It wasn't like the conversations happened weeks apart. I think she is fully aware of what she is telling you and expecting that you will now, with the actual and full data, either pursue or drop.
I agree that if you are otherwise interested enough to give it a shot, you might as well move on and see where it goes. But I am of a pretty strong opinion that she has told you where you need to be for her to be interested.
I can't say why this is her requirement as everyone is different. Everyone has different sexual turn ons. I know men who think nothing of turning down a flat chested woman who would be mortified if they were turned down due to penis size. It's just that the breast size is usually easier and more gracefully handled before it gets to a more intimate level. Have you ever rejected an otherwise fine woman because something about her didn't work for you? Well, that's all it really boils down to. Would you be less emotionally impacted if you were 5-8 and she wanted a man closer to 6 foot tall? What if she had a thing for feet and she considered yours ugly? Try not to make this more of an issue than it is. Just another case where the physical defines a big part of the failure or success of the relationship.