Maybe sometimes the stacks are supposed to separate because they are moving to different locations. Anyway, it would still help if they would fight together even if they were moving separately.
Hit to OP: it doesn't waste a movement if you start the fight manually. THEN hit the autoresolve button in the lower-left of the combat screen.
As for size limits, there is supposed to be one, but (A) the is some kind of loophole, because last night I attacked a little city and it was defended by about 40 units. Yikes! Also, the combat went ok, no crashes or anything, so the engine can handle it. So I'd vote for increasing or eliminating the stack limit.