Translation:We are not big enough to eat you but we will try.
The "o" really is the definite article and not "ou". In this sentence "suficiente" is used to modify the adjective "grandes" (so it becomes not just big, but big enough). The word "suficiente" on its own is an adjective, but to operate in this role it must be an adverb. The adverbial version of "suficiente" is "o suficiente" (I guess another possibility is "suficientemente"). See danmoller's comments in this discussion for a native speaker's perspective: http://www.duolingo.com/comment/617964.
You are right about it being an odd sentence, but I don't think your version works. Here, I guess, writing "o suficiente" stops "suficiente" from being interpreted as an adjective. The phrase "o suficiente" is best translated as "enough" and a literal translation of the entire sentence is "We are not big enough to eat you, but we are going to try".
I'm not really sure where this sentence came from. Regarding your first question, you can see the same phrase used with more or less the same meaning in this translation database: http://www.linguee.com/english-portuguese/search?query=grandes+o+suficiente.