>Playing with the scale layouts, I notice that label lines still display text at 1:5000, but label points do not.

That seems odd.

>It also appears that label lines stretch the text to match the length of the line regardless of the font scale set in the options for the label line.

That is my understanding as I described here http://therion.speleo.sk/wiki/doku.php/drawingchecklist#lines

>I was hoping there would be a way to set text so that if the font size makes the text size shorter than the line when the text would not stretch out along the full line length, but if the text scale made it larger than the line length then it would be limited to the length of the line. This would prevent text growing to be excessively large and run over the cave passage, but at scales where smaller text scales are set it is not stretched out so much along the line. Is something like this possible?

Not as far as I know.  The text should only overwrite cave passage if the line crosses the passage or if the line is very close to the passage.  The maximum text height is controlled by –scale xs to xl, so you have very good control of that.

Once I figured out how it works I decided I like the behavior of ‘line label’;

-you set the (maximum) text size, and the text path and length exactly where you want it

-if the text won’t fit its size is reduced until it does.

What I have found, if the scales are not too divergent, the desirable text path length is about the same regardless of the scale.

Where this doesn’t work for me I use ‘point label’.

Bruce