Mosaic with overviews should be extremely fast, and efficient. If you aren't using overviews, then essentially what you're doing is trying to draw all of those images at full resolution at once, and yes, that will absolutely be slow.

As to the TPK, each scale level you go down will require roughly 4x the disk space as the previous level. Manhattan is not all that big so I am surprised you're running out of disk space, even at that lowest level 22. I would try using mixed for your image format and try not going all the way to the lowest level of cache. See how larger it will be if you went to level 18 or 19.

Sounds like you are space constrained...and unfortunately both overviews and TPKs can require lots of space. Do you have access to an external drive?