Barry Popik--amateur etymologist known as an expert on the origins of Big Apple, Windy City, and hot dog--posted on his blog about "Smallbany" (or "Smalbany"), a pejorative nickname for the capital city of New York.
The question remains: "Should it be 'Smallbany' to contain the word 'small', or should you simply add an 'sm-' to 'Albany' to make 'Smalbany', and keep the integrity of the original spelling of the city?"
According to City Dictionary Citizen, 'nycapital', it's "Smallbany". For now, we'll go with what our Citizens say. Of course, tomorrow someone could add the altnerate spelling, and we'd have to reconsider.
Bottom line: Both spellings are valid if you can find the locals spelling it both ways.