"V těch ulicich domy jsou příliš malé." Please help me understand why this answer is not correct.
Jsou wants to be in the second position here. It is no a strong clitic, but your order sounds just wrong. Sometimes there are no simple rules one can apply.
Domy na TĚCHTO ulicích jsou příliš malé. ??
"Houses on THEESE streets" ??
"Ty domy na tamhletěch ulicích jsou příliš málé" ?
It is accepted with a typo. You need malé, not málé.
"V ulicích" is much better then "na ulicích", although we do accept it.
"Domy jsou příliš malé v těch ulicích." Give me one reason to strictly reject this sentence (as Duolingo did).
Give me one context where would you propose to use it.
Normal context. The houses are too small on those (or THOSE) streets.
Would "techtam" be correct here as well? Or is it redundant and therefore not needed?
tamtěch would work
Yes, of course: tamtech. The "techto" vs. "tamtech" crossed my wires.