Interesting points, especially about cultural differences between outgroups of the German diaspora and those in Germany proper. Also the bit about American-Germans: from 1848 to 1914 millions of Germans emigrated there, so somehow stemming that through offering greater economic opportunities at home would make a big impact. IIRC, Italian migrants to America were quite transitory, and about half of them went home after they made their bundle, whereas the Germans were much more inclined to stay. Not sure quite why that was the case, but it proves your point that we often think of emigration as a permanent loss, whereas in the long term this is not necessarily the case and many do find compelling reasons to come back.
I think the colonial thing is an interesting but ultimately separate discussion I dont wanna derail into, however I think a colonial Germany would be better off picking one parcel and really investing a lot into it, particularly Namibia or Angola as their climates are quite conducive to European settlement.
For what its worth, Im surprised at how many responses say 170 million or more, that was a bit of a shock! It seems hard to imagine because OTL Germany never developed any hyper-dense megacities like New York or Hong Kong, nor sprawling megaregions like Paris or London with 10 million people or more that allow for high populations, and I feel like 170 million in Germany is going to require several massive conurbations. I wonder where they would be? Berlin is an obvious one, but I think there would need to be 2 or 3 more, following the rule that megacities tend to be the centre of equidistant hub and spoke systems so they cant be too near each other. I think it would rule out Hamburg, since that is quite close to Berlin, but its possible it could be one I guess. I would definitely think Munich could become a megacity, and Frankfurt too. Perhaps one as a locus of economic activity in the East as well, such as Leipzig or Prague? 170 million is about 100 million more people, which I dont think Germany could sustain in its current density patterns (it seems to still have a lot of 'small villages' where people commute from).
I agree with your point on colonialism, be it in Africa or Eastern Europe. The basic point is that Germany can't spread itself too thin, and should keep the states/colonies meant for Germanisation as few as possible. But they're still highly beneficial for German goals and continued German strength.
Germans had a significant rural component to their settlement, Italians were mainly urban.
170 million is definitely too much. But in any case, I think East Germany would be the point for a larger population. Leipzig, Dresden, Breslau, Kattowitz (assuming it can annex nearby cities), could all be major cities. Breslau and Kattowitz especially since Silesia is rich in natural resources, although it runs the risk of ending up like the North of England in the deindustrialisation era. Hamburg I think will be one too, since it is a major port city and has been important since the Middle Ages. Obviously the Ruhr metropolis too. For Prussia proper, Königsberg will be larger than it was under either German or Russian rule. Bavaria and Austria have Münich and Vienna respectively. Prague of course can remain an important center of the German nation.