I'm lost in most of the electronics discussion, but I am up to date on batteries. Earlier, someone mentioned LiPoly batteries and failed to point out they are 3.2v rather than 3.7, the voltage of Li-Ion batteries.
I'm a bit confused why you're talking about stepping up/down the voltage. The camera uses a battery pack of 7.4v, which means it has two Li-Ion batteries of 3.7 each.
You stated, "the big challenge is space, which is approximately 100mmx26mmx26mm. It could roughly fit two 26500 or C size cells placed one on top of the other perfectly or 8 AA cells".
It seems the simplest thing, to me, would be to build a new battery pack using higher capacity batteries than the 1000mAh OEM batteries.
My go to source for batteries is Tenergy, (all-battery.com is Tenergy's direct sales site), I've been using their batteries for a number of years and while their tech support is hit & miss, their batteries are good quality, (and great prices).
They have a 4200mAh 26650 Li-Ion with buttons or tabs that should give you some good capacity.
If I was thinking about your project, I'd build a replacement battery pack to replace the OEM 1000mAh battery pack and then figure out how to tie in, (in parallel), an additional 4200mAh battery pack in your pistol grip handle to give you a total capacity of 8400mAh.
Just my suggestion...
Good luck.