Assuming we don't see floating barge-cities and antarctic dome-habitats popping up, you might be able to achieve some substantial savings with a system that's limited to major continents and islands. That's a ~70% shrinkage in the coordinate-space.
Alternately, maybe some form of huffman coding that assigns shorter representations to common zones...
I'd doubt limiting land space would be very helpful -- given that the each character encodes 33 possibilities (alphabet + digits, without O, I, or L for clarity), you'd need to reduce the space by a factor of 33 (~97%) to remove a single character.
Huffman coding would be interesting, but the tradeoff would be that since locations are no longer standardized to 10 characters, you'd lose the validation aspect of it (not to mention you'd have to change the name =).
Edit: Apparently S and Z are also missing, so 31 possibilities.
Alternately you could keep the same number of characters and use the "extra" to encode more accuracy. Trimming it from 10m accuracy down to 3m sounds very useful for finding stores and homes in denser cities.
Alternately, maybe some form of huffman coding that assigns shorter representations to common zones...