There's some preprocessing steps that I'm not quite clear on. To clarify: you are doing the following:
- 2x101bp illumina paired-end sequencing
- adapter trimming which can reduce your reads to as short as 25bp due to highly fragmented source material
- merge overlapping read pairs into a longer synthetic read
- what level of contamination do you have, and how are you dealing with it?
Are you error correcting the overlapping bases?
You are correct in asserting that there isn't much of signal in your data for SV tools to work with. Since your genome is so small, de novo assembly is not computationally prohibitive so that's probably worth trying but you're going to lose most of reads since they're so short. You'll also assembly a whole lot of junk if you have a high level of contamination. If you're interested in ancient novel sequence that has since been lost, this is probably your only option.
If you use a traditional SV tool, then you're just going to have to deal with the high signal to noise ratio due to your data. Pindel works pretty well with short reads since it was developed in the era of 2x36bp sequencing but can only detect certain events and has a high false discovery rate. Another option is to use GRIDSS (disclaimer: my software) and see how much of a signal it can get out of the noise. GRIDSS augments the traditional read pair and split read signals with a breakend assembly step. Essentially, it attempts an assembly at every genomic locus that there might be an SV event, then does split read analysis on the breakend assembly contigs to identify the other loci involved. This approach allows some of the reads (such as short soft clips) that are ignored in traditional split read analysis to contribute to the variant call.
With such short fragments, there's not much of a signal to start with but it's still better than manually inspecting 3Mb of sequence in IGV.