You know, if the above screenshot is your dungeon layout, I don't feel any claustrophobic vibe at all. The space is wide, ceiling and left and right walls are not visible and multiple torches give impression of large room.
Anyways, as for your questions:
Atmosphere vs. Gameplay:
I hate tight spaces cause it limits my movement. I prefer wide rooms which allow me to choose how I'd handle combat there.
Encounter Flow:
Well, making sure every room is filled with enemies is something I'd do in level design. OTOH dead space has nothing to do with enemies placement. It's more about map design instead.
Visual Narrative:
Personally, I don't care much about this cause most of the time, I'm busy fighting enemies and don't have time to observe walls, objects, furnitures or anything else for narrative.