A few years I did some legibility testing for BAA who were considering changing fonts for their airport signs. A key finding was that a narrow, condensed typeface (Vialog) was less legible from a distance than the regular ones tested (eg, Frutiger).
In fact the results suggested that a smaller size of a regular font was just as legible as a narrow one at the same size – so using a condensed font to fit in longer names is actually unnecessary unless your main concern is consistency of x-height. [Insert usual disclaimer about more research being needed.]
This phenomenon is also recognised in studies by Garvey et al (1997) and Rubin et al (2006). It reinforces the warning that it is unsafe to assume that research results obtained with a particular typeface can be generalised across other typefaces – particularly if size is only defined in terms of height (eg, points or x-height) without taking relative width into account.
However, I recently read Gordon Legge and Charles Bigelow's very thorough 2011 review of recent legibility research. It's particularly interesting because Legge is a vision researcher and Bigelow a typographer, both distinguished and much published in their fields.
They express the opposite view, that narrower type is more legible, citing a 1996 study by Aries Arditi who has worked quite extensively with Metafont to explore different proportions and spacing of letters to optimise text for people with poor vision.
A little surprised at this, I've found the Arditi study and here is what he tested:
So... stop right there before you conclude anything at all from this with respect to setting proper typefaces for continuous reading. These letterforms are from opticians' test charts.
Although I imagine they are designed to occupy the same space on the chart, they are remarkably poorly conceived even to meet that objective. It is bizarre, for example, that the W has been compressed so it occupies the same maximum width as everything else, making no allowance for its angularity. No kerning has been allowed, with the result that although normally a wide letter it actually looks narrower than other letters.
By the way, don't worry, the narrow and wide letters here are the extreme forms tested (although why you would go that far I don't understand. Why would that ultra-wide 'I' ever be recognised? I have to confess that I understand very little of the Arditi study which uses a specialist terminology and reports its results quite cryptically, but it seems to be looking at the correct reading of individual letters in short strings, by very small numbers of visually-impaired people.
Arditi, Aries (1996) Typography, print legibility and low vision, in
Roy G. Cole and Bruce P. Rosenthal (eds), Remediation and management of low vision. Mosby Incorporated.
Garvey, P., Pietrucha, M., and Meeker, D. (1997). Effects of font and capitalization on legibility of guide signs. Washington, DC: Transportation Research Board, National Research Council.
Legge, G. E., and Bigelow, C. (2011). Does print size matter for reading? A review of findings from vision science and typography. Journal of Vision, 11(5), 1–22
Rubin, G. S., Feely, M., Perera, S., Ekstrom, K., and Williamson, E. (2006). The effect of font and line width on reading speed in people with mild to moderate vision loss. Ophthalmic and Physiological Optics, 26(6), 545-554.
Waller R. (2007) Comparing typefaces for airport signs, Information Design Journal, 15, 1-15