I agree with a more complex and compact reactor system, but I strongly disagree with arbitrary boundaries that prevent systems from functioning, and I propose an alternative somewhat similar to others in the thread.
1. Increase reactor complexity with various systems around the core to increase efficiency and safety in the event of overheating. Furthermore, add heat sinks, radiator blocks, and possibly coolant pipes to connect them. Reactors would provide power and produce heat as a by-product. As power demands increase, so too would heat output.
2. Instead of arbitrary boundaries, tie heat management to the surface area of hull and armor blocks exposed to space. Armor blocks would be less efficient at dissipating heat than basic hull blocks, therefore forcing design choices to be made. Lightly armored ships with fast heat dissipation would be one extreme, while heavily-armored brawlers devoting lots of internal space to heat sinks would be the other.
Hull shape would also be important, as the surface area to volume ratio of an oversized brick is lacking, to say the least. This would be the death knell of efficient Borg cubes of massive size, due to the square-cube law. This would also allow for more design decisions and compromises, since a non-combat ship such as a cargo or mining vessel could get away with a boxy hull and large, flat "sails" made of basic hull plating or other blocks that act as basic and cheap low-temperature radiators. On the other hand, this arrangement would be less than ideal for a combat ship, which would probably opt for dedicated (but expensive) radiator blocks and heat sinks to prevent their cooling from being shot off the moment the shields go down.
3. The idea of radiators and heat sinks I'm going for are not the hard sci-fi fare of massive retractable panels, but similar to those in the Mass Effect universe, which are strips made of high-temperature material placed along the hull. In game, these would be ordinary but expensive blocks placed along the outer hull that provide a large amount of additional cooling, but take up a small enough area on the hull that they are not blatantly obvious weak points for the average weapon. The radiators could glow with heat when under heavy load, which would be a nice visual effect and allow for creative design choices, such as a symbol on the hull only becoming obvious when the ship is operating at full combat power.
4. Overheating. Vessels should suffer from overheating if heat output exceeds heat dissipation, and any heat sinks are already overburdened. First, this would cause HUD warnings. Second, radiators and blocks close to them would begin to take damage, exacerbating the problem if the ship continues to operate over-capacity as these systems are destroyed. Lastly, the reactor core or cores would melt down, causing extensive internal damage and disabling the vessel, even gutting it. Internal armoring should be able to mitigate this effect, but if coolant pipes are implemented, would force compromises. Reactors should not explode by being directly hit, but only through battle damage to cooling systems that would be distributed throughout the ship in a good design.
5. The system should be balanced so that massive flying bricks and spheres dedicated to combat are highly inefficient or even non-functional, but well before the point that space-borne chandeliers rule the skies. That would be silly.
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